Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Watchdog in dilemma over household debt regulation
Financial Services Commission Chairman Eun Sung-soo speaks during a press conference with CEOs of savings banks here in Seoul, April 9. Yonhap
By Lee Min-hyung
By Lee Min-hyung
Financial watchdogs are faced with a growing dilemma over whether to keep tightening household loan regulations, amid concerns that introducing new lending rules particularly on mortgages will end up causing residential property prices to keep soaring.
Such concerns are escalating ahead of an announcement by the Financial Services Commission (FSC) on new regulations to slow down rising household debt. Authorities led by the FSC are fine-tuning details before unveiling the measures possibly as early as next week.
Financial regulators are being urged to apply the brakes on the rapid growth in household lending to brace for rising interest rates after the pandemic subsides. According to data from the Bank of Korea (BOK), Korea's total outstanding household loans increased 7.9 percent in the fourth quarter of 2020, compared to the year before. Household debt has been on the rise for five consecutive quarters since the third quarter of 2019.
Authorities reached an internal consensus to cut the household loan growth rate down to the 4-percent range until next year by introducing a series of regulations. But they remain cautious this time amid fears that the new regulations may end up sending the wrong message to the market.
The government is also considering easing loan regulations on younger Koreans and borrowers who intend to buy homes with the money.
The changes come in the aftermath of the ruling party's crushing defeat in the April 7 mayoral by-elections. With the public voting against the ruling party amid the housing market turmoil, the government and financial watchdogs are trying desperately to change their years-long regulation-driven housing policies.
Details include alleviating the loan-to-value ratio applied to non-homeowners, borrowers in their 20s and 30s and newlyweds. But the FSC and the Ministry of Economy and Finance are still debating over how much the ratio should be eased, as offering excessive benefits to those groups will could spark controversy over reverse discrimination against homeowners and other age groups.
Regardless of the upcoming housing regulations, commercial banks here are expected to reduce their loans to households throughout this year in line with the policy direction of authorities.
Banks have already begun raising interest rates for loans and cutting deposit rates. Recent data from the BOK also showed that the average loan interest rate at commercial lenders here has been on a gradual rise to reach 2.74 percent in February from 2.66 percent last September.
“Banks have no choice but to cut loan offerings to households possibly until the end of this year, as authorities are unlikely to make drastic changes in their policy direction in the near future,” a bank industry source said.