The method of managing household loans by financial authorities came under scrutiny during a National Assembly audit. Amid calls for stronger soundness regulations like the Debt Service Ratio (DSR) instead of direct loan limits, Lee Chan-jin, head of the Financial Supervisory Service (FSS), expressed that the current DSR regulation is excessively lenient.
During the comprehensive audit of the Financial Services Commission and the FSS by the National Assembly's Political Affairs Committee on October 22, Lee stated, "I have never seen a country with such a lenient DSR as ours."
On the same day, lawmaker Kim Hyung-yeon from the Justice Innovation Party pointed out that the financial authorities' management of household loan totals effectively acts as a forced regulation. He argued that while the authorities set loan total targets and penalize banks that exceed them, they shift the responsibility for loan restrictions onto the banks.
Kim criticized, "The authorities make the decisions, the public bears the consequences, and the explanations and responsibilities are passed on to the banks." In response, Financial Services Commission Chairman Lee Ok-yeon emphasized the need for soundness regulations and management guidance to ensure market stability and manage systemic risks.
Chairman Yoo Dong-soo of the Political Affairs Committee also noted the necessity of using quantitative indicators for loan management rather than total volume regulations. He inquired about the need to strengthen loan regulations by referencing international examples.
Yoo remarked, "There is no country like Korea where personal loans are so easily accessible," but he also stressed the importance of a cautious approach regarding the intensity of regulations. He explained that since housing loans are backed by solid collateral and have a high likelihood of interest recovery, their supply will inevitably continue to increase without separate management.
The financial authorities have also highlighted that they are raising the risk weight (RW) floor for housing loans and increasing the burden on high-risk loans.
In this context, Lee Chan-jin pointed out the limitations of the current DSR regulation. He noted, "As successive governments have fluctuated the DSR, household debt has surged to a level that is now unmanageable."
He further emphasized that the household debt issue cannot be attributed to one government or another, but is rather the result of accumulated regulatory practices over time.
* This article has been translated by AI.
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