(image: KobizMedia/ Korea Bizwire)
SEOUL, Sept. 28 (Korea Bizwire) — South Korea’s financial watchdog said Friday it will implement a stricter loan screening rule for insurance companies next week to help control risk from the country’s fast rising household debt.
Local insurers will have to apply to the so-called debt service ratio to almost all household loans on a pilot basis starting Sunday, according to the Financial Services Commission.
Starting next year, the financial watchdog will use DSR as a key tool to manage insurance companies’ unsecured and mortgage loans to households.
DSR measures how much a borrower has to pay in principal and interest payments in proportion to his or her yearly income. It is one of the barometers checked for risky household loans.
The application of the new rule is seen as being aimed at keeping borrowers from flocking to nonbank financial institutions and heading off a rise in risky household loans.
Local commercial banks have been using their own DSR guidelines on household lending since March, giving heavier scrutiny to loan applications that have high ratios.
South Korea has been ramping up efforts to regulate household loans in a bid to curb snowballing household debt and soaring home prices.
According to the latest central bank data, South Korea’s household credit, including loans from financial institutions, came to 1,493 trillion won (US$1.34 trillion) as of end-June this year, which marks a 362 trillion-won rise from the second quarter of 2015.
(Yonhap)
