A view of Hyundai Apartments in Apgujeong, Gangnam District, Seoul. (Image courtesy of Yonhap)
SEOUL, May 20 (Korea Bizwire) — The country’s financial regulator said Tuesday that tighter rules on household loans will come into effect from July as planned amid still higher debt levels.
According to the Financial Services Commission (FSC), tighter debt-service-ratio (DSR) rules will be applied to virtually all kinds of household debts, and the stress interest rate will be raised to 1.5 percent from the current 0.75 percent.
But the stress interest rate for household loans extended outside of the capital area will remain flat at 0.75 percent.
The FSC introduced the DSR ratio in February 2024. It measures how much a borrower has to pay for principal and interest in proportion to his or her yearly income, serving as a ceiling on aggregate lending.
The enhanced measures will come as household debts in the country do not show signs of easing amid widely expected rate cuts by the Bank of Korea (BOK) down the road.
Banks’ outstanding household loans rose 4.8 trillion won (US$3.45 billion) in April from a month earlier, marking the third consecutive monthly increase and a sharp acceleration from the 1.6 trillion-won increase seen in March.
Home-backed loans rose by 3.7 trillion won in April from the previous month, also marking an acceleration from a 2.5 trillion-won increase logged in March.
The central bank kept its benchmark interest rate unchanged at 2.75 percent in April in a bid to support the wobbly currency and ensure financial stability, while adopting a cautious stance amid heightened uncertainty from the Donald Trump administration’s sweeping tariff campaign.
The BOK decision followed a quarter-percentage-point rate cut at the previous meeting in February, which marked the third reduction since October 2024, when the central bank began its monetary easing cycle for the first time since August 2021.
The central bank is widely expected to cut rates in the coming months given the murky outlook for Asia’s fourth-largest economy.
(Yonhap)
