S. Korean gov't announces tougher loan screening measures to reduce household debt
- 6 years ago
원리금 연소득 70% 넘으면 '위험대출'…대출 어려워진다
The country's household debt is estimated to have reached around 1-point-3 trillion U.S. dollars.
To fight this trend, the government announced stricter loan screening rules for banks.
Ko Roon-hee explains how the changes would work.
South Korea's Financial Services Commission and Financial Supervisory Service announced on Thursday that they are creating a specific standard, based on the debt-service ratio, for what is classed as a risky bank loan.
Vice Chairman of the FSC Kim Yong-beom said this change, which will come into effect at the end of the month, will help lower the rate of household debt growth.
"Although household debt problems are less likely to spread to systemic risks, the absolute size is large and the growth rate is fast. Credit management measures such as the debt-service ratio and rent-interest ratio should be implemented to further slow down debt growth."
The debt service ratio, or DSR, is calculated by dividing a borrowers' annual income by their annual debt repayments including interest.
A high DSR is negative from the bank's point of view.
Since March this year, banks have applied their own debt-service ratio standards to almost all household loans on a pilot basis.
Each bank had a different definition of a risky borrowing... but their average definition of a high DSR was 100%.
According to the FSC's new announcement, loans with DSRs exceeding 70% will now be categorized as a high DSR... and banks should limit these to 15% of new loans.
And only 10 percent of new loans will be allowed to have a DSR above 90%.
Commercial, regional and specialized banks will have different limitations.
The Financial Supervisory Service is expected to check if banks are following these measures on a monthly basis.
Meanwhile, the government aims to reduce the average DSR of commercial banks to 40% by the end of 2021...which is around 10-percent lower than their average DSR last June.
Ko Roon-hee, Arirang News.
The country's household debt is estimated to have reached around 1-point-3 trillion U.S. dollars.
To fight this trend, the government announced stricter loan screening rules for banks.
Ko Roon-hee explains how the changes would work.
South Korea's Financial Services Commission and Financial Supervisory Service announced on Thursday that they are creating a specific standard, based on the debt-service ratio, for what is classed as a risky bank loan.
Vice Chairman of the FSC Kim Yong-beom said this change, which will come into effect at the end of the month, will help lower the rate of household debt growth.
"Although household debt problems are less likely to spread to systemic risks, the absolute size is large and the growth rate is fast. Credit management measures such as the debt-service ratio and rent-interest ratio should be implemented to further slow down debt growth."
The debt service ratio, or DSR, is calculated by dividing a borrowers' annual income by their annual debt repayments including interest.
A high DSR is negative from the bank's point of view.
Since March this year, banks have applied their own debt-service ratio standards to almost all household loans on a pilot basis.
Each bank had a different definition of a risky borrowing... but their average definition of a high DSR was 100%.
According to the FSC's new announcement, loans with DSRs exceeding 70% will now be categorized as a high DSR... and banks should limit these to 15% of new loans.
And only 10 percent of new loans will be allowed to have a DSR above 90%.
Commercial, regional and specialized banks will have different limitations.
The Financial Supervisory Service is expected to check if banks are following these measures on a monthly basis.
Meanwhile, the government aims to reduce the average DSR of commercial banks to 40% by the end of 2021...which is around 10-percent lower than their average DSR last June.
Ko Roon-hee, Arirang News.