[Financial Policy 2025] Strengthening Loan Management and Easing Financial Industry Regulations in the New Year

Unified Jeonse Loan Guarantee Ratio at 90%
16.2 Trillion KRW Scale PF Distressed Projects Cleared in H1
Holding Company Fintech Investment Limit Raised from 5% to 10%
Large Financial Investment and Insurance Companies' Accountability Structure Pilot Operation in July

The Financial Services Commission (FSC) will implement the third phase of the stress DSR (Debt Service Ratio) from July this year to strengthen household loan management, while also accelerating deregulation and innovation in the financial industry, such as easing restrictions on financial holding companies' investments in fintech firms. The aim is to manage risks through stable control of the household debt growth trend and to pursue structural changes that enhance the competitiveness of the financial industry.

On the 8th, the FSC announced its major work plans for this year under the theme of "Economic Risk Management and Economic Vitality Enhancement" at the joint economic ministry briefing (Economic Sector 1 Major Issues Solution Meeting), with the policy direction of "balancing market stability, livelihood recovery, and financial innovation."

Lowering Jeonse Loan Guarantee Ratios... Restructuring and Clearing KRW 16 Trillion of PF Non-performing Projects in the First Half

The FSC will implement the third phase of the stress DSR from July 2025 to manage the household debt growth rate within the nominal growth rate. This measure will apply not only to banks but also to all loans in the secondary financial sector. For mortgage loans in the metropolitan area, the interest rate stress test benchmark will be raised by up to 1.50 percentage points (P). This is to more strictly assess borrowers' repayment ability by reflecting the possibility of interest rate increases.

Additionally, the current Jeonse loan guarantee ratios, which are 90% for Korea Housing Finance Corporation and Seoul Guarantee Insurance, and 100% for Korea Housing & Urban Guarantee Corporation, will be unified to 90%, with further reductions under consideration only for the metropolitan area. This aims to improve the qualitative structure of household debt and enhance financial market stability. However, the plan to include Jeonse loans in the DSR calculation, which was discussed last year, has been excluded from this year's work plan. An FSC official explained, "Since the real estate market has stabilized, it is only on the discussion table for now," adding, "For the time being, we will leave it to the financial sector's discretion, and the government's household loan management plan will proceed in the direction of unifying the guarantee ratio."

Institutional improvements to reduce risks in real estate project financing (PF) will also be pursued. A plan to regulate developers' equity ratio at 20% and to differentiate risk weights and provisioning regulations will be prepared in the first half of the year. However, this will be implemented gradually after a grace period. Furthermore, through restructuring and clearing of non-performing projects, about KRW 16.2 trillion worth of real estate PF non-performing loans will be resolved. This work is scheduled to be completed by the first half of this year.

Soundness management of the secondary financial sector will also be strengthened. The principle of same function, same regulation will be applied to mutual finance sectors, and regulations on real estate PF exposure for securities firms and real estate trust companies will be improved. This is intended to enhance overall financial sector stability and guide a soft landing of the real estate market.

Promoting Securitization of Death Insurance Benefits and Allowing Peer-to-Peer Card Transactions as 'Innovation'

Photo by Getty Images Bank

Regulatory easing and innovation will be pursued in parallel to strengthen the competitiveness of the financial industry. The ownership limit of fintech companies by financial holding companies will be raised from the current 5% to 15%, and the new licensing process for internet-only banks will begin in March. In particular, a collaboration model between regional financial institutions and internet-only banks will be developed to improve regional financial accessibility.

The direction to securitize death insurance benefits is also being pursued. A certain percentage of death insurance benefits will be used as collateral to calculate an amount to be paid in the form of an annuity, or instead of an annuity, services in kind such as nursing home admission rights and healthcare usage rights will be provided to customers, enabling low-income elderly people to use these as a means of retirement preparation.

Additionally, measures to respond to new payment demands will be implemented, such as allowing peer-to-peer card transactions for monthly rent payments and secondhand transactions, and raising card usage limits for minors. To support these innovations, following the introduction of accountability structures in holding companies and banks in January this year, pilot operations of accountability structures for large financial investment companies and insurance companies will be conducted in July to ensure smooth internal control.

To support the recovery of the real economy, the scale of policy finance supply will be expanded to an all-time high. A total of KRW 247.5 trillion in policy finance is scheduled to be supplied in 2025, with KRW 136 trillion concentrated in five major strategic sectors including advanced strategic industries and new industries. More than 60% of this will be swiftly executed in the first half to boost economic vitality.

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