Starting this year, banks will manage household loans on a monthly and quarterly basis, and if they exceed the annual household loan target, they must reduce the loan volume by the excess amount the following year. Additionally, a three-stage stress debt service ratio (DSR) measure that further reduces limits on housing loans will be implemented as scheduled in July.
The plan is to lower the guarantee ratio of Jeonse loan guarantee insurance from 100% to 90% and consider further reductions in the metropolitan area. The ratio of equity capital for real estate project financing (PF) projects will be raised to over 20%, and measures will also be introduced to differentiate financial companies' risk weights and provisions based on the implementing company's equity capital ratio.
On the 8th, the Financial Services Commission (FSC) reported to Choi Sang-mok, the acting Prime Minister and Minister of Strategy and Finance, about the '2025 major work promotion plan' at the '2025 Economic Issues Solution Meeting.'
◇ Financial authorities maintain household loan management policy
According to the promotion plan, the FSC has decided to manage the growth rate of household debt within the economic growth rate (GDP growth rate) this year as well. In the case of banks, they plan to guide the loans to be handled through monthly and quarterly distributions to prevent excessive supply of household loans at certain times.
Last year, some banks exceeded their annual household loan targets in the second half, leading to some loans being suspended or interest rates being raised to manage total loan volume. Because of this, consumers facing real estate contracts experienced financing difficulties, which caused confusion. The FSC plans to instruct banks that exceed their annual household loan targets to reduce their loan volume by the excess amount the following year.
The stress DSR stage 3 will also be introduced in July. The stress DSR is a system that reduces the loan limit by adding a stress additional charge to the borrower's loan interest. When the stress DSR stage 3 is implemented, the stress rates will be applied to all housing loans, credit loans, and other loans in the financial sector. The current stage 2 only applies to bank loans. The basic stress interest rate will increase from the stage 2 range of 0.75 to 1.2 percentage points to 1.5 percentage points.
However, the FSC explained that it may make minor adjustments in implementing stage 3 of the stress DSR depending on the real estate market situation.
Starting in July, the guarantee ratio for Jeonse loans will be unified to 90%. The Jeonse guarantee ratio is the percentage at which the guarantee institution pays on behalf of the person who has taken out a Jeonse loan if they are unable to repay the loan. Currently, the guarantee ratio is set at 90% by the Korea Housing Finance Corporation, while the Korea Housing and Urban Guarantee Corporation and Seoul Guarantee Insurance are both set at 100%. The FSC explained that it is reducing the Jeonse guarantee ratio, citing the need to evaluate the borrower's repayment ability. They also decided to consider further reductions in the Jeonse guarantee ratio for the metropolitan area.
◇ Measures to prevent recurrence of real estate PF insolvency
To prevent repeated insolvency in the real estate PF market, plans to increase the equity capital ratio to the 20% range will be implemented in stages. Currently, the implementing company starts its business with 3 to 5% equity capital and proceeds with land acquisition and permits through bridge loans. They subsequently repay the bridge loans with a main PF while financing the total project cost. Due to this practice, there have been issues where delays in transitioning to the main PF lead to rapid insolvency.
Financial companies must differentiate the risk weights and provision accumulation ratios for PF project establishments according to the implementing company's equity capital ratio. The FSC projected that restructuring and sorting out PF project establishments worth 16.2 trillion won would be completed in the first half of the year. This corresponds to 77.5% of the targeted restructuring/sorting out amount (20.9 trillion won).
To stimulate recovery in the real economy, policy finance institutions, including the Korea Development Bank, Industrial Bank of Korea, and Credit Guarantee Fund, will inject 247.5 trillion won in policy funds this year. This is an increase of 7 trillion won compared to the previous year. Of this amount, 60% is planned to be executed in the first half of the year.
Specifically, 136 trillion won will be supplied to five key strategic areas, including high-tech strategic businesses and new businesses. This amount represents a 17.2% (20 trillion won) increase compared to the previous year. In the semiconductor sector, 4.25 trillion won will be injected into low-interest facility investment loans at levels of government bond interest rates. Amendments to raise the authorized capital of the Korea Development Bank from the current 30 trillion won to 50 trillion won are also being pursued to expand the supply of policy funds.
The introduction of a financial stability account is also being promoted. The financial stability account is a system that proactively supports liquidity when a normal financial company faces temporary difficulties such as liquidity shortages. Additionally, the system for corporate restructuring due to global industrial restructuring and poor business conditions will be reorganized.