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| Financial Services Commission Chairman Koh Seung-beom announces supplementary countermeasures against household debts at the Government Complex Seoul, Tuesday. Yonhap |
FSC dismisses impact of tightened lending rules on low-income households
By Park Jae-hyuk
Concerns have emerged over the government's announcement on Tuesday that tightened lending rules will take effect six months earlier than initially planned.
The forthcoming regulations are intended to prevent the nation's snowballing level of household debt from dealing a blow to the domestic economy, but borrowers and financial experts have criticized the plan especially for stymieing housing purchases by lower-income households.
According to the Financial Services Commission (FSC), individual borrowers who have outstanding loans of more than 200 million won ($172,000) will be subject to stricter debt service ratio (DSR) rules starting in January. Those having outstanding loans of more than 100 million won will be subject to the regulations starting in July of next year.
Those who borrow money from nonbanking lenders, such as credit card issuers, savings banks and insurers, will also face stricter loan regulations starting in January.
The DSR is used to enable a household to take out a certain amount in loans in proportion to its annual income. The tightened rules will lower the maximum amount of money that each household can borrow.
"We will lower the household debt growth rate next year to around 4 percent to 5 percent, similar to the nominal GDP growth rate," FSC Chairman Koh Seung-beom said at a press conference.
Data from the FSC showed that the country's annual household debt growth rate had decreased from 8.1 percent in 2017, to 5.9 percent in 2018 and 4.1 percent in 2019. However, following the start of the COVID-19 pandemic and the rise in asset prices, the household debt growth rate rose to 7.9 percent last year.
The government views this trend as the most serious threat to the Korean economy, amid the growing possibility of the imminent normalization of monetary policies in the U.S., including the Fed's "tapering."
From that standpoint, the FSC also asked financial firms to make more efforts to manage potential risks from household debts by drawing up plans on their lending every quarter.
"We will make financial firms lend their money more systematically, so that they do not stop extending their loans abruptly," the FSC chairman said.
The financial regulator did not rule out the possibility of tightening loan regulations further, if the upcoming rules fail to curb the excessive rise of household debts.
Some borrowers were confused with the government's announcement.
Internet forums on real estate and social media were flooded with questions from potential homebuyers, who asked whether they will be able to borrow money from banks.
Banking industry officials expect the new regulations will make it more difficult for low-income families to borrow money for housing purchases, increasing income inequality.
Real estate experts warned that stricter rules could reduce the trading volume of apartments, forcing low-income families to continue living in rental housing, instead of owning their own homes.
"Except for those who have a large amount of cash or rich parents, it will be more difficult for people to buy housing," KB Kookmin Bank real estate team head Park Won-kab said.
The FSC denied such concerns, citing that individual borrowers having outstanding loans of more than 200 million won account for only 13.2 percent of all borrowers.
In addition, loans for home rentals will not be subject to the tightened lending rules until the end of this year. Borrowers will also be able to take out unsecured loans in excess of their annual incomes if they plan to spend the money for weddings, funerals or surgery.
