New Financial Regulations in the New Year... Full Implementation of Weekly Borrower-Based DSR

Financial Services Commission Announces 28 Changes to Financial Systems in the New Year

[Asia Economy Reporter Jin-ho Kim] Starting next year, the total debt service ratio (DSR) regulation will be significantly strengthened as part of the systematization of household debt management. The financial authorities' consistent stance is to tighten loans to manage household debt, which is the biggest risk factor for the Korean economy. Additionally, loan limits for the Worker’s Sunshine Loan and Sunshine Loan Bank will be expanded to support low-income and low-credit vulnerable borrowers. Many changes are also anticipated to support the youth, digitalize finance, and protect financial consumers.

The Financial Services Commission announced on the 30th that it selected 28 financial system changes that will take effect from the new year, including these measures.

First, the borrower-level DSR phases 2 and 3 will be fully implemented next year. Starting in January, borrowers with total loans exceeding 200 million KRW will be subject to borrower-level DSR regulations. From July, even those with total loans exceeding 100 million KRW will be regulated under borrower-level DSR. Notably, card loans will also be included in the DSR calculation.

However, to support genuine demand borrowers, an exception clause for credit loan regulations will be newly established. Exceptions will be made for credit loans related to genuine needs such as marriage, funerals, and surgeries, exempting them from the credit loan limit of one times annual income. The limit for jeonse deposit loans available through the Korea Housing Finance Corporation will also be expanded from 500 million KRW in the metropolitan area and 300 million KRW in other regions to 700 million KRW in the metropolitan area and 500 million KRW in other regions.

Financial support for low-income and low-credit vulnerable borrowers will be greatly expanded. The loan limit for the Worker’s Sunshine Loan and Sunshine Loan Bank will be raised to 5 million KRW starting February next year. To support those affected by COVID-19, the special repayment deferral system by the Credit Recovery Committee will be made permanent, with extended deferral periods and expanded eligibility. The fee burden on small business owners will be eased, and the eligibility criteria for preferential housing pensions will also be lowered.

Youth entrepreneurship and asset formation will also be supported. In March next year, a fund of 42 billion KRW will be established to invest in youth start-ups and expand venture capital supply for youth entrepreneurship. For youth aged 19 to 34 with a total annual salary of 36 million KRW or less, 2-4% of their savings deposit payments will be provided as a savings incentive, and interest income will be tax-exempt.

To accelerate the digitalization of finance, the API-based financial MyData service will be fully implemented first. Convenience of open banking use will be enhanced, and the start date for innovative financial services will be changed in a market-friendly direction. The convenience of fintech investments for financial companies will also be improved.

From the perspective of supporting the real economy, an ESG information platform will be established. Fractional trading of overseas and domestic stocks will also be permitted. To enhance corporate transparency, the disclosure of corporate governance reports will be expanded.

To protect financial consumers, the application requirements for the right to request interest rate reductions will be expanded, and related information will be sent via text messages twice a year to eligible borrowers. To reduce insurance premium burdens, if a spouse registered as the main insured under the automobile insurance couple special contract separately subscribes to insurance, the no-accident record of the existing contract will be recognized. Institutional improvements for foreign currency insurance and non-face-to-face insurance contract cancellations are also planned.

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