S Korea eyes household debt growth below 8.2%
Government plans to curb excessive lending to meet its target
SEOUL The government plans to keep the growth rate of household debt to below 8.2 per cent this year by taking a set of steps to curb excessive lending, the nations top financial regulator said yesterday.
Outstanding household debt stood at 1,450.9 trillion won (US$1.35 trillion) in the fourthquarter of last year, up 8.1 per cent 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 Jongku told a meeting of representatives from the financial sector that the growth of household debt has been significantly stabilised.
The government will ac- tively encourage banks and other financial institutions to keep the growth of household debt to below 8.2 per cent this year by better managing household credit and minimising 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, peoples 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 borrowers repayment ability and reduce the risk of default.
The head of the Financial Supervisory Service (FSS) yesterday called for savings banks to curb high-interest loans, criticising them for taking a bigger bite out of people with poor credit ratings.
Their average loan delinquency ratio stood at 1.87 per cent as of the end of 2017, down 0.2 percentage point from the previous year, it added.
Governor Kim Ki-sik made the remarks at a meeting with chief executives of savings banks as he is facing growing calls to step down over revelations that three overseas trips he made as a lawmaker between 2014 and 2015 were funded by financial and research institutions under the oversight of a National Assembly committee, where he was a member.
The government lowered the maximum legal lending rate to 24 per cent per annum in March, and some savings banks have charged an about 20 per cent rate.
Kim accused some savings banks of charging higher interest rates that are comparable to private lending firms although savings banks can raise funds at lower borrowing costs.
Savings banks average loandeposit margin is about 8 per cent, compared with some 2 per cent margin by retail banks, Kim said.
Yesterday meeting with heads of savings banks was Kims third public activity since revelations about his overseas trips were reported.
Last week, President Moon Jae-in said he will sack Kim if his controversial overseas trips are found to have been illegal or substantially below ethical standards. YONHAP