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Tightening of household loan regulations seems to be working: financial regulator

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Kim Byoung-hwan, chairman of the Financial Services Commission, speaks during a press conference at the Government Complex Seoul, Thursday. Yonhap

Kim Byoung-hwan, chairman of the Financial Services Commission, speaks during a press conference at the Government Complex Seoul, Thursday. Yonhap

‘Work is underway to lift full ban on stock short selling by March 31'
By Jun Ji-hye

Kim Byoung-hwan, chairman of the Financial Services Commission (FSC), cautiously expected that the implementation of stricter rules on household loans may begin producing results this month, as the debt balance tallied during the first week of the month was at half the level of the same period last month.

He made the remarks during a press conference, Thursday, amid mounting concerns that the growth of household loans, led by an increase in mortgages, has reached an alarming level and poses a threat to economic growth.

"Now, I have data only for the first five business days of September, so I am very cautious about making predictions. However, during that period, household loans amounted to 1.1 trillion won ($820 billion), which were at half the level compared to last month," Kim said.

"We will continue to monitor developments in the situation. If the slowdown in loan growth continues, additional measures to tighten loan regulations will be considered based on further observations."

The household loans across the financial sector increased by 9.8 trillion won in August. This was the largest monthly increase in three years since July 2021, when it was 15.2 trillion won.

In response to the debt growth, the financial authorities have been working to tighten lending regulations gradually by implementing stricter debt service ratio (DSR) rules, aimed at effectively lowering the maximum loan limit. The second phase of implementation took effect on Sept. 1, following the first phase in February.

The authorities have also directed banks to join the move, leading them to implement their own measures to tighten lending practices.

"There is consensus on the need to manage household debts in a stable manner. At the same time, there is a demand for ensuring that funds are supplied to those with genuine needs (those buying homes to live in)," Kim said.

"While loans increased by 9.8 trillion won in August, we must question how many of these borrowers were truly in urgent need. What we aim for is to ensure that those who genuinely need to borrow are able to do so, while it is important to control those who borrow for speculative purposes."

With regard to the nation's full ban on stock short selling, the head of the country's top financial regulator said work is underway to establish systems with an aim of lifting such a ban at the end of next March. The systems he mentioned include a computerized monitoring system to monitor illegal short selling practices.

The country's ban on stock short selling was put in place in November last year, and was originally set to expire at the end of June. But it was pushed back to March 31 next year.

The ban was cited as one of the major reasons for Korea's failure to obtain the reclassification of its stock market as a developed market by global index provider Morgan Stanley Capital International (MSCI).

Being included in the MSCI-developed market index can positively impact the stock market capital flows, as it attracts global investment funds that follow the index.

Regarding this, Kim made it clear that his agency is working to upgrade the country's capital market through policies focused on enhancing corporate value and resuming stock short selling, among other measures, but such efforts are not solely for the inclusion in the MSCI-developed market index.

"If we meet the necessary criteria as a result of our ongoing efforts, we expect positive outcomes then," he said.

Jun Ji-hye jjh@koreatimes.co.kr


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