"Increased Bank Household Loans Exceed Plan"…FSS Strengthens Credit Screening

Review of the Appropriateness of Bank Household Loan Management Measures

The Financial Supervisory Service (FSS) has determined that household loans are likely to increase due to expectations of interest rate cuts and housing price recovery. To curb loan demand, the FSS will strengthen credit screening and tighten management by requiring individual banks that exceed their business plans to establish future response measures.

On the 27th, the FSS held a briefing on household debt at its headquarters in Yeouido, Seoul, stating that the increase in household loans from January to August in the banking sector has already exceeded the annual business plans set by the banks themselves.

Deputy Director Park Chung-hyun explained, "There is a high possibility that household loans will continue to increase, and there are limits to responses at the individual bank level, so micro-level soft landing efforts by the supervisory authorities are necessary. We plan to strengthen credit screening to suppress unnecessary loan demand and urge all sectors to establish screening practices within repayment capacity to prevent balloon effects in other industries."

According to the FSS, as of the 21st, the increase in household debt compared to the banks' annual business plans reached 150.3% for the four major banks. When annualized for the eight months of this year, the increase amounts to about 200.4%. Expanding to all banks, the figures are 106.1% and 141.4%, respectively, significantly exceeding the original plans.

Deputy Director Park attributed the recent surge in household debt to "last-minute demand before the implementation of the second phase of the Debt Service Ratio (DSR) stress test, but also to the recent rise in real estate prices centered in Seoul combined with the possibility of future interest rate cuts." However, he emphasized, "This does not mean that management is currently impossible."

The financial authorities plan to guide banks that have issued more household loans than their annual business plans to lower their average DSR. He said, "The average DSR across the banking sector is around 20-30%, but for banks with excessive household loan increases compared to their annual business plans, we will require them to lower their average DSR. I believe it is necessary to differentiate the average DSR when setting management plans for next year."

The FSS also stated that it will strive to minimize inconvenience to genuine borrowers along with these measures. Deputy Director Park said, "The biggest distinction is whether the demand is speculative or not. It would be good if banks strengthen repayment ability screening when handling loans for cases like gap investment (purchasing a house with a jeonse lease)."

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