Getting Loans Harder Next Year... Total Volume Regulation and DSR to Be Strengthened

Next Year's Household Loan Growth Target Set at 4.5~5%, Down 1%p from This Year
Jeonse Loan Growth Target Also Included... Bank Lending Capacity Expected to Shrink Significantly
DSR, the Ultimate Loan Regulation, to Be Introduced Early... Approximately 6 Million Financial Consumers Affected

The government plans to introduce additional regulations on household loans within this week, increasing anxiety among genuine borrowers. Especially, those urgently needing loans for jeonse deposits or apartment balance payments are already voicing concerns, fearing they might become 'loan refugees.' The photo shows a loan product notice posted on the exterior wall of a commercial bank in Seoul on the 4th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Kim Jin-ho] Next year, it is expected to become more difficult to obtain loans than this year. This is because banks will enter total volume management mode from the beginning of the year due to strengthened regulations. With the Debt Service Ratio (DSR) regulation, known as the ultimate loan regulation, being significantly tightened, an unprecedented "loan freeze" is anticipated.

According to the financial sector on the 25th, major banks have proposed a household loan growth target of 4.5-5.0% to financial authorities for next year. This is up to 1 percentage point lower than this year.

This year, starting with NH Nonghyup Bank, most major commercial banks experienced a halt in household loans. Considering that this year's target was in the 5-6% range, there are concerns that the target will be even lower next year, potentially causing a similar situation again.

Therefore, the usual practice of banks significantly lowering the loan threshold at the beginning of the year is expected to disappear next year. To avoid repeating this year's loan suspension incidents, financial authorities and banks plan to manage the situation more meticulously through measures such as "quarterly supply plans." It is expected that loans will be executed more tightly than ever before.

In particular, the growth target for next year includes Jeonse loans. This year, Jeonse loans were excluded from the growth target due to sudden regulations, but the situation will be different next year. If Jeonse loans are included in total volume management, banks' lending capacity will inevitably be greatly reduced. Moreover, the government is currently reviewing plans to reduce the public guarantee ratio for Jeonse loans, which is expected to make the situation even more difficult.

Early implementation of the DSR regulation, originally scheduled for introduction by 2023, next year will also pose significant challenges for borrowers. The financial authorities' consistent stance is that lending more than 2-3 times one's annual income, as was done in the past, is undesirable, and loans should only be given "within what the borrower can afford."

Accordingly, from January next year, borrower-level DSR regulations will apply to borrowers whose total loan amount exceeds 200 million KRW. When borrowing from banks, the ratio is restricted not to exceed 40%. From July onwards, the scope will expand to include borrowers with loans exceeding 100 million KRW.

For example, if a borrower with an annual income of 40 million KRW is subject to the DSR regulation, they can only receive bank loans with an annual principal and interest sum of up to 16 million KRW. Even if they take additional loans from secondary financial institutions, the principal and interest limit is 20 million KRW.

Approximately 6 million financial consumers fall within the scope of the strengthened DSR regulation. According to Kang Min-guk, a member of the National Assembly's Political Affairs Committee from the People Power Party, 5.93 million borrowers will be subject to borrower-level DSR regulations next year. In particular, about 1.2 million people under their 20s and over 60s, who have relatively low fixed incomes, are expected to find it virtually impossible to obtain additional loans if they hold loans exceeding 100 million KRW.

A financial sector official said, "A comprehensive loan freeze is expected in the loan market next year as well," adding, "Especially because the DSR regulation is so strong, difficulties for young people and the elderly with low incomes, as well as self-employed individuals who have difficulty proving income, are inevitable."

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