Financial regulator to remain vigilant against upticks in household debt

South Korea’s financial regulator said Thursday it will remain watchful over a potential rebound in household debt down the road amid the trend of falling market rates.

“There is the possibility of household debt growth accelerating at any time depending on market rates and the home market,” the Financial Services Commission said in a statement. “We need to prepare for measures in advance to be implemented (to curb a rise in household debt).”

The regulator said the more tightened debt service ratio will come into effect in September as planned, and its details will be finalized by May.

The FSC introduced the so-called stress DSR ration, which measures how much a borrower has to pay for principal and interest in proportion to his or her yearly income, serving as a ceiling on aggregate lending.

The financial regulator’s steps came as the country’s household debt showed signs of easing recently.

Household loans extended by South Korean banks fell for the second consecutive month in January as household loans fell for the first time in nine months in December on tight lending rules to rein in surging household debt and rising home prices.

But expected rate cuts by the Bank of Korea and a potential rebound in the home market are feared to stoke household debt.

Earlier this week, the central bank slashed its benchmark interest rate by a quarter percentage point to 2.75 percent to shore up economic growth affected by domestic political turmoil and the Donald Trump administration’s sweeping tariffs.

The central bank is widely expected to further trim the rate down the road.

The FSC said it will consistently manage household debt growth within the expected nominal gross domestic product growth rate of 3.8 percent for 2025.

South Korea’s household debt-to-GDP ratio had steadily increased for 17 years since 2004, reaching 98.7 percent by the end of 2021 and raising concerns for potential risks to the economy.

The ratio, however, has been on a downward trend for three consecutive years since 2022, reaching an estimated level of 90.5 percent last year.

The regulator said it will provide some 60 trillion won ($41.8 billion) in policy loans this year, similar to last year’s, aimed at supporting the underprivileged and the newlyweds. (Yonhap)