SEOUL: South Korea’s financial authorities said Thursday that they will place top priority on reining in household debt this year through a “structural shift” in the borrowing practice. In a report to Acting President Hwang Kyo-ahn on its policy direction, the Financial Services Commission (FSC) pointed out the structural vulnerabilities of the nation’s household credit totaling more than 1,300 trillion won (US$1,077 billion). Besides efforts to reduce the size, the government has “sought a fundamental and structural response rather than stop-gap measures,” the FSC chairman Yim Jong-yong said. He stressed the need to jack up the portion of fixed-rate mortgage loans and create a system to amortize debts. This file photo shows Yim Jong-yong, chairman of the Financial Services Commission, speaking at a press conference.
The commission aims to raise the ratio of fixed-rate mortgages extended by banks here to 45 percent this year from 41.4 percent at the end of September last year. The FSC also plans to craft a roadmap for advancing the screening process of borrowing qualifications in the first quarter of 2017. “The newly-introduced debt service ratio (DSR) is expected to play a pivotal role,” Yim said. Currently, the local financial industry is advised to use the DSR on a voluntary basis. The DSR, published by the Bank for International Settlements (BIS), reflects the share of income used to service debt. It’s regarded as a reliable early warning indicator for systemic banking crises. The government plans to induce local lenders to expand the use of the DSR starting in 2018. The FSC said it will also step up efforts to offer policy support for reinvigorating the real economy. “We will increase the supply of policy financing (for the local corporate sector) to a record high of 187 trillion won,” Yim said. “In particular, 85 trillion won will be used for new-growth industries.” Another priority is market stability and unswerving corporate restructuring, he added, citing growing external uncertainties including the pace of U.S. interest rate hikes amid a prolonged economic slump.