[2022 Financial Services Commission Report] Solid Financial Stability... Managing Household Debt Growth Rate at 4~5%

Driving Economic Growth through Policy Finance Supply
Expanding Inclusive Finance... Strengthening Support for Vulnerable Borrowers and Consumer Protection Measures

[Asia Economy Reporter Jin-ho Kim] The financial authorities' key tasks for next year can be summarized as supporting economic growth through maintaining robust financial stability. They also plan to enhance financial dynamism, promote financial development, and foster inclusive finance and the spread of financial trust.

On the 22nd, the Financial Services Commission (FSC) disclosed the '2022 Government Work Report' plan based on these points. The FSC stated, "We will support economic growth based on firm financial stability and financial development, while spreading the inclusive finance policy."

The FSC identified strengthening household debt management as the top priority. While based on total volume control, they plan to normalize the household debt growth rate to 4-5% by reinforcing system management.

As part of household debt management measures, the 2nd and 3rd phases of the borrower-level Debt Service Ratio (DSR) regulation will be implemented sequentially. When the 2nd phase of DSR is enforced in January next year, borrowers with total loans exceeding 200 million KRW will be unable to obtain loans if their annual principal and interest repayment amount exceeds 40% of their annual income (50% for secondary financial institutions). In July next year, when the 3rd phase is implemented, the regulation target will expand to those with total loans exceeding 100 million KRW.

However, the plan is to reduce the burden on low-income and vulnerable groups during the tightening of loans. Sufficient limits and incentives will be provided for loans to low-to-medium credit borrowers and products for the financially vulnerable. In the case of banks, the financial institutions' self-established supply plans will be fully recognized.

Additionally, considering the sharp increase in loans to individual business owners, debt risks will be carefully examined and tailored measures devised. The orderly normalization of COVID-19 financial response measures will also be pursued.

In light of changes in financial conditions, the FSC plans to strengthen the dynamism of the financial industry by improving systems for each financial sector and encouraging sound management of financial companies.

Specifically, they will institutionally support strengthening the competitiveness of the financial sector by expanding the scope of business so that financial companies can operate various business models.

Along with promoting infrastructure and institutional innovation to accelerate digital transformation and platformization in the financial sector, a foundation for financial consumer protection and fair competition will be established. The financial regulatory sandbox system will be solidified, and the financial security regulatory framework rationalized, while encouraging financial companies to autonomously establish effective internal control systems.

Through the supply of policy finance amounting to 200 trillion KRW, economic growth will also be driven. By strengthening policy finance support and improving institutional foundations, structural transformation of the real economy such as digital advancement and carbon neutrality implementation will be actively supported.

By advancing the corporate funding support system, funds will flow to the right places where needed, such as startups and ventures, supporting the enhancement of corporate competitiveness. At the same time, through capital market innovation, more venture capital will be induced to be supplied to the real sector.

Inclusive finance will also be further strengthened. To this end, tailored financial support for vulnerable groups such as low-income households will be enhanced. First, 10 trillion KRW worth of policy finance for low-income households will be supplied, and product structures such as support targets and limits will be improved to strengthen credit recovery support for vulnerable borrowers.

To protect financial consumers, preventive measures against illegal high-interest and unlawful debt collection will be implemented, and sanctions under the Loan Business Act for violations of the maximum interest rate regulation will be strengthened. Support will also be provided for asset accumulation and income expansion for old age in preparation for population aging.

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