Kim Byunghwan "It's Time to Lower Loan Interest Rates... Household Debt Continues to Be Managed" (Comprehensive)

Kim Byung-hwan: Household Debt Growth to Be Managed Within 3.8 Percent Nominal Growth Rate
"Banks Should Lower Loan Interest Rates in Line With Base Rate Cuts"
Considering Stronger DSR to Establish Borrowing Practices Based on Repayment Ability
Separate Fund at Industrial Bank to Support Advanced Industries Like Semiconductors

Financial Services Commission Chairman Kim Byung-hwan is speaking at a press briefing on recent issues held at the Government Seoul Office in Jongno-gu, Seoul, on the 22nd. Photo by Jo Yong-jun

Kim Byung-hwan, Chairman of the Financial Services Commission, announced that the household debt management policy will continue this year following last year. He ordered banks to lower loan interest rates in line with the base interest rate cuts. A plan is also being pursued to create a separate fund within KDB Industrial Bank to directly support investment funds for the development of Korea's advanced key industries such as semiconductors.

On the 22nd, Chairman Kim held a press briefing at the Government Seoul Office in Sejong-ro and said, "This year, the increase rate of household debt will be managed within the government's projected nominal growth rate (real growth rate + inflation rate) of 3.8%," adding, "If so, the ratio of household debt to GDP, which exceeds 90%, is expected to continue to decline this year."

He emphasized, "Discussions are underway on how banks will set household loan policies this year," and added, "While household loan policies are basically autonomous for each bank, from the perspective of supervising macroprudential stability, it is desirable that debt increases within the nominal growth rate range." However, he added, "For regional banks, considering the difficult real estate situation, the household debt increase rate may be slightly higher than 3.8%."

Loan Interest Rates Should Decrease in Line with Base Rate Cuts

He also mentioned the necessity of lowering loan interest rates by banks. Chairman Kim said, "Although the base interest rate was cut twice last year, the speed and extent of banks lowering loan interest rates have clearly not been sufficiently reflected," adding, "Some banks are taking or considering measures to reduce the spread, and we will continuously monitor and inspect this."

This came in response to a question about whether the political demand for interest rate cuts, including the meeting between Lee Jae-myung, leader of the Democratic Party, and heads of commercial banks, is justified. He replied, "I believe it is time for banks to reflect the lowered base interest rate."

Regarding household debt policy, he said they will establish a practice of borrowing money according to repayment ability. To this end, they are considering strengthening the Debt Service Ratio (DSR) system, which further tightens limits such as the mortgage loan (Judaemae) ceiling. He explained, "The third phase stress DSR is scheduled to be implemented as planned from July, and details such as the stress interest rate level and applicable targets will be decided and announced around April or May."

Since last September, the financial authorities have applied stress interest rates of 1.2 percentage points in the metropolitan area and 0.75 percentage points in non-metropolitan areas to mortgage loans and credit loans in banks and mortgage loans in secondary financial institutions as part of the second phase measures.

Financial Services Commission Chairman Kim Byung-hwan is speaking at a press briefing on recent issues held at the Government Seoul Office in Jongno-gu, Seoul, on the 22nd. Photo by Jo Yong-jun

Chairman Kim stated that going forward, financial institutions will be guided and supervised to use income data for internal management DSR in credit management, even for household loans such as jeonse loans that do not require income screening. Although the financial authorities decided last September to calculate internal management DSR for all household loans including jeonse loans, they judged that banks have insufficient income data for loans not subject to DSR.

He said, "It seems that banks do not have strict income data for jeonse loans, interim payment loans, and policy loans that are not subject to DSR," adding, "If necessary, we will establish systems or provide guidance to accurately collect such data."

Regarding questions about Woori Financial Group's application to acquire Dongyang Life Insurance and ABL Life Insurance, he replied that since the review has just begun, the schedule will proceed according to procedures. Chairman Kim said, "The results of Woori Financial Group's regular inspection and rating are important points," adding, "We will not pre-decide the results before the review."

Discussion on Supporting Competitiveness of Advanced Industries such as Semiconductors

Additional support measures to strengthen the competitiveness of advanced industries such as semiconductors were also disclosed that day. Chairman Kim announced, "We are consulting with related ministries on establishing a separate fund at the Industrial Bank to support financing for strengthening the competitiveness of advanced industries."

The Industrial Bank currently operates a support program that provides loans to semiconductor companies at low interest rates. The reason the Financial Services Commission is considering establishing a fund is the judgment that it is difficult for domestic companies to compete overseas during the Trump era with loans alone. Chairman Kim said, "While low-interest loans reduce interest expenses, interest costs also affect companies' cost competitiveness," adding, "We are considering ways to alleviate the constraints of the loan program."

He continued, "We can directly invest in company shares, but when establishing or expanding factories, we can also consider creating a separate Special Purpose Company (SPC) where companies and policy finance jointly invest," emphasizing, "This has advantages over loans in terms of costs, and large-scale investment methods are possible when subsidies cannot be provided."

Chairman Kim said, "Once consultations with related ministries on the establishment of the Industrial Bank fund are completed, we will announce the finalized plan at the Industrial Competitiveness Ministerial Meeting and submit a bill to the National Assembly to enable support as quickly as possible."

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