South Korea's Financial Services Commission (FSC) will maintain its 1.5% annual household loan growth target despite projected GDP increases, FSC Secretary-General Shin Jin-chang stated at a presidential briefing on the 15th. The decision comes as KB Kookmin Bank autonomously reduced its mortgage lending limit from 6 billion won to 3 billion won without prior regulatory coordination. Shin emphasized that Korea's household debt-to-GDP ratio remains elevated at the late 80% range compared to advanced economies' mid-60% levels, and warned that easing debt management could stimulate the real estate market.
KB Kookmin Bank Reduces Mortgage Limit Autonomously
KB Kookmin Bank's recent reduction of its mortgage lending limit from 6 billion won to 3 billion won occurred without prior coordination with financial authorities, according to Shin Jin-chang. "Kookmin Bank determined this autonomously, and as far as we know, other banks are not considering reducing their limits," Shin stated. He clarified that banks have autonomy in setting loan parameters, while government intervention is limited to areas requiring regulatory oversight. Other major banks have not announced similar limit reductions following KB's move.
FSC Considers Three-Year Averaging for DSR Performance Bonus Calculation
The FSC is examining adjustments to how performance bonuses are reflected in Debt Service Ratio (DSR) calculations, Shin explained when asked about implications for Samsung Electronics and SK Hynix employees. "If this year's income increased 30% compared to last year, we don't reflect all of it in DSR but average it with last year's income," Shin said. "The intention is to spread this calculation over approximately three years." The current methodology averages the current year's income with the previous year's figure when calculating borrowers' debt servicing capacity.
Fixed-Rate Loan Conversion Faces Market Rate Obstacles
The FSC's policy to shift borrowers from variable-rate to long-term fixed-rate mortgages faces market constraints, Shin acknowledged. "Currently, banks' 5-year periodic loan rates are in the 6% range, while variable rates are as low as 4.3%, making it difficult to promote fixed-rate conversion through government efforts alone," he stated. The official cited the interest rate differential between benchmark rates, U.S. Treasuries, domestic government bonds, and Korea Housing Finance Corporation's mortgage-backed securities (MBS) issuance as structural obstacles. "This year is not a situation where we can policy-drive a shift to long-term fixed rates," Shin said, while adding that the FSC has not abandoned the conversion goal and will maintain policy attention based on market conditions.
FAQ
Why did South Korea's FSC maintain the 1.5% household loan growth target despite GDP increases?
FSC Secretary-General Shin Jin-chang stated that while nominal GDP growth is expected to exceed 10%, the household debt-to-GDP ratio decline would result from GDP expansion rather than debt reduction. Korea's ratio remains high at the late 80% range compared to advanced economies' mid-60% levels, and easing debt management could stimulate the real estate market.
Did financial authorities coordinate with KB Kookmin Bank before the mortgage limit reduction?
No. Shin Jin-chang confirmed there was no prior coordination between authorities and KB Kookmin Bank regarding the reduction of mortgage limits from 6 billion won to 3 billion won. He stated this was an autonomous bank decision, and other banks are not considering similar limit reductions.
