[Song Seungseop's Financial Light] What Are the Changing Points of Secondary Financial Sector Loans?

Finance is difficult. It is filled with confusing terms and complex backstories intertwined. Sometimes, you need to learn dozens of concepts just to understand a single word. Yet, finance is important. To understand the philosophy of fund management and consistently follow the flow of money, a foundation of financial knowledge is essential. Accordingly, Asia Economy selects one financial issue each week and explains it in very simple terms. Even those who know nothing about finance can immediately understand these ‘light’ stories that turn on the bright ‘light’ of finance.

[Image source=Yonhap News]

[Asia Economy Reporter Song Seungseop] The secondary financial sector usually serves middle- to low-credit or low-income individuals. As such, changes in the operational regulations or business environment of the secondary financial sector can have a significant impact on ordinary people. Like other financial sectors, the secondary financial sector will experience major and minor changes in 2022. Let’s highlight the key points.

First, the total volume will decrease. In the case of savings banks, this year’s total volume had to be capped within 21.1% compared to the end of the previous year. However, next year’s total volume limit is expected to decrease to 10.8?14.8%. The mutual finance sector received a household loan growth rate limit of 4.1% this year, and it is likely to remain at a similar level next year.

The individual Debt Service Ratio (DSR) will also be implemented starting January next year, six months earlier than originally planned. If the total loan amount exceeds 200 million KRW, the DSR regulation will apply. This means that the annual principal and interest repayment amount cannot exceed 40% of the annual income.

The average DSR standard for the secondary financial sector will also be lowered. The financial industry has recommended average DSR standards to be managed by sector. The average DSR will be significantly strengthened, especially for sectors with recent high growth such as mutual finance, capital companies, and savings banks. Currently, the borrower-level DSR of 60% applied to the secondary financial sector will be lowered to 50%.

It’s not all ‘whip.’ There is also a ‘carrot.’ The financial authorities are considering exempting loans to middle- and low-credit borrowers or policy financial products from the total volume regulation. This is to prevent ordinary people and genuine borrowers from being pushed into a loan cliff. Financial Services Commission Chairman Ko Seungbeom also directly stated, “We are actually considering a plan to exclude them from total volume management,” and added, “Specific incentive measures will be finalized this month after consultation with the financial sector.”

This content was produced with the assistance of AI translation services.