Financial Authorities Announce Administrative Guidance on Household Loans: "Increase in Installment Repayment and Fixed-Rate Loan Proportions"

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[Asia Economy Reporter Song Seung-seop] It is expected to become more difficult to obtain loans with variable interest rates in the future. This is because financial authorities plan to administratively guide financial institutions to increase the proportion of fixed-rate loans. They also plan to expand the proportion of installment repayment loans to strengthen soundness.

According to financial authorities on the 12th, the Financial Supervisory Service recently announced the 'Detailed Plan to Promote Improvement of Bank Loan Structure.' The plan includes raising the target proportion of fixed-rate loans to 52.5%, which is 2.5 percentage points higher than last year. The proportion of non-grace period installment repayment loans (equal principal installment repayment and equal principal and interest installment repayment) was also set at 60%, up 2.5 percentage points.

This plan is a follow-up measure to the 'Strengthening Household Loan Management Plan' announced by the financial authorities in October last year. The Financial Services Commission previously announced plans to expand non-grace period installment repayment loans to improve the qualitative soundness of household loans. If such loans increase, even if a default occurs where borrowers cannot repay, the financial institutions' losses are reduced. Fixed-rate loans also have the effect of reducing default risk caused by rising interest rates.

From this year, targets will also be set for individual mortgage loans. The target is 82.5% based on year-end balance. The fixed-rate loan target is 68.5%. However, loans for jeonse deposits, interim payments, and relocation expenses are excluded.

Secondary financial institutions will also be guided to expand the proportion of installment repayment loans. The insurance industry's target proportion for mortgage installment repayment loans is 67.5% (an increase of 2.5 percentage points from the previous year). The fixed-rate loan proportion also increased by 2.5 percentage points to 55%. The mutual finance sector's mortgage installment repayment target was set at 45%, up 5 percentage points.

The improvement plan for branch performance indicators was also included in the administrative guidance announcement. The method of evaluating based on household loan performance will be abolished, and profitability and soundness indicators will be strengthened.

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