SEOUL, April 16 (Korea Bizwire) — The government plans to keep the growth rate of household debt to below 8.2 percent this year by taking a set of steps to curb excessive lending, the nation’s top financial regulator said Monday.
Outstanding household debt stood at 1,450.9 trillion won (US$1.35 trillion) in the fourth-quarter of last year, up 8.1 percent from a year earlier, according to the data by the Bank of Korea. It marked the slowest pace since the first quarter of 2015.
Financial Services Commission (FSC) Chairman Choi Jong-ku told a meeting of representatives from the financial sector that the growth of household debt has been “significantly stabilized.”
The government will “actively encourage” banks and other financial institutions to keep the growth of household debt to below 8.2 percent this year by better managing household credit and minimizing risks from rate hikes, Choi said.
Banks and other financial institutions were also urged to strengthen their monitoring of household lending at a time when market interest rates are on the rise.
Although there is little risk that household debt could spark a financial crisis here, indebtedness is growing faster than income, which may be choking off private consumption.
Top-tier banks will soon implement tougher guidelines for mortgage loans on a trial basis.
Currently, people’s repayment ability for home mortgages is calculated on a ratio that measures home mortgage principal and interest payments as a proportion of their annual income.
The stricter lending rule for home mortgages, named the Debt Service Ratio (DSR) by the financial authorities, will use a new ratio that measures all debt principal and interest payments as a proportion of annual income.
Financial authorities have said the DSR system will better assess a borrower’s repayment ability and reduce the risk of default.