second-tier financial institutions increased by the largest amount in three years, financial authorities began preparing countermeasures. Yonhap News “/>
Last month, as household loans from second-tier financial institutions increased by the largest amount in three years, financial authorities began preparing countermeasures. Yonhap News The government has decided to strengthen lending regulations in all aspects of secondary financial institutions, including savings banks, agricultural, fisheries, and credit unions, and Saemaeul Geumgo, in order to prevent the rapid increase in household debt. We will also consider applying the annual household loan target, which has been required only for banks, to second-tier financial institutions, and implementing strengthened debt service ratio (DSR) regulations.
This is because the financial authorities’ lending regulations are focused on commercial banks, causing a clear ‘balloon effect‘ in which household loans from second-tier financial institutions with loose regulations are rapidly increasing. However, as the financial authorities’ supervisory authority over the mutual financial industry is limited and 80% of household loans in secondary financial institutions are excluded from DSR application, there are concerns that the balloon effect will continue for the time being.
▶See pages A1 and 8 of this magazine’s November 2nd issue.
○Second financial household debt increases by the largest amount in 3 years
According to the financial sector on the 3rd, the Financial Services Commission will hold a household debt review meeting on the 11th and present a strengthened management plan related to household loans from second-tier financial institutions. Although the Financial Services Commission convened officials from the second financial sector on the 11th and 23rd of last month to convey concerns about the balloon effect, it judged that the rapid increase in household loans was not being controlled.
According to the financial authorities, household loans from second-tier financial institutions increased by nearly 2 trillion won last month alone. This is the largest increase in three years since November 2021 (KRW 3 trillion), when the ultra-low interest rate trend continued due to the COVID-19 incident. This is a completely different situation compared to the fact that the increase in household loans of the five major commercial banks, including Kookmin Shinhan, Hana, and Woori Nonghyup, last month was KRW 1.1141 trillion, down by one-fifth from the previous month (KRW 5.6209 trillion).
Accordingly, it was found that the household loan balance of all financial institutions, including commercial banks, local banks, and secondary financial institutions, increased significantly over the past month compared to the previous month (KRW 5.2 trillion). Although major commercial banks’ self-loan regulations, such as restrictions on mortgage loans for multiple homeowners, implemented last September under government pressure, have been effective since October, there is analysis that demand for loans has shifted to second-tier financial institutions.
The government has begun preparing measures to suppress the supply and demand of household loans from second-tier financial institutions. First, in order to curb supply, a plan is being considered to require secondary financial institutions to submit annual household loan targets. First-tier banks report to the financial authorities every year at the beginning of the year how much they plan to increase household loans by the end of the year, and are subject to sanctions if they exceed the target.
○ There are many DSR holes, so there are concerns about the balloon effect continuing.
A plan to strengthen DSR for household loans from second-tier financial institutions is also being discussed in order to suppress demand for loans from financial consumers. Financial authorities calculate the DSR by adding a stress interest rate of 1.2% points to home loans and credit loans borrowed from banks, but 0.75% points are reflected for home loans from second-tier financial institutions. The higher the stress interest rate, the smaller the borrower’s loan limit, and the financial authorities are considering raising the stress interest rate for secondary financial institutions to 1.2% points.
The government is looking into various measures to curb household loans from second-tier financial institutions, but some say it is not enough to have an immediate effect. Even if the stress interest rate is raised to strictly calculate DSR, most household loans in second-tier financial institutions are excluded from DSR application.
According to data from the Financial Supervisory Service obtained by the Korea Economic Daily through People Power Party lawmaker Kim Jae-seop, 86.9% of the new household loans handled by the savings bank industry in the first half of this year were not subject to borrower-level DSR regulations. During the same period, the proportion of household loans in the mutual financial industry not subject to DSR was 68.2%, and most of the household loans in the insurance industry (76.5%) and specialized credit finance industry (92.1%) were also not subject to DSR.
The reason why DSR does not apply to such a large proportion of household loans from second-tier financial institutions is that loans mainly handled by second-tier financial institutions, such as down payment and moving expenses loans and credit loans of 100 million won or less, are excluded from the DSR count.
Reporter Jeong Eui-jin/Choi Han-jong [email protected]
