Credit Crunch Continues As 40% -DSR Rule Widely Enforced

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Hana Bank’s lending department in Seoul on Tuesday. The government has announced stricter loan regulations that will be implemented in January 2022 to curb household debt. With the normalization of the central bank’s monetary policy, debt has become a major risk to the economy. [YONHAP]

The credit crunch continues as regulators impose a hard cap on the amount borrowers can take on debt.

From January 2022, principal and interest payments on loans will be limited to 40% of income if the total obligations exceed 200 million won. The rule will apply to debts of 100 million won or more from July 2022.

For unsecured loans, the 100 million won rule will apply from day one

Thus, a person earning 50 million won per year will be limited to debt with principal and interest payments totaling 20 million won per year.

The cap already exists, but only for people buying properties over 600 million won in areas deemed overheated or speculative by the government.

For non-bank financial institutions such as mutual savings banks, the debt service ratio (DSR) will be reduced from 60% to 50%.

The maximum term of unsecured loans has been reduced from 7 years to 5 years, which means that borrowers’ monthly payments will increase.

Initially, the government was to apply the stricter lending guidelines from July 2022.

Koh Seung-beom, the hawkish new head of the FSC, has repeatedly warned of the risk of household debt snowballing, even when he was a member of the central bank’s monetary policy committee.

With the central bank increasing the base rate, the cost of servicing loans has already increased.

According to the Bank of Korea, household loans excluding credit card debt stood at 1,705.3 trillion won in the second quarter of this year. That’s a 10.3 percent increase year over year.

“Although uncertainty remains regarding the Covid-19 measures, the process of returning to normal has started,” FSC Chairman Koh said on Tuesday. “In the process of recovery, we must ensure that we firmly maintain financial stability.
“Recently there has been growing uncertainty in global finance. The national economic and financial situation is not easy, the real estate market is showing signs of overheating and the rate of increase in debt exceeds estimates.

According to KB Kookmin Bank, the average price of an apartment in Seoul is 1.2 billion won. This is double the average price in May 2017.

BY LEE HO-JEONG [[email protected]]


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