The financial authorities decided not to exceptionally ease the total debt repayment ratio (DSR) loan regulation when purchasing unsold dwellings in local areas. The stance of the financial authorities is that allowing borrowers to take out loans beyond their repayment ability creates problems by stimulating the local economy through individual debt. They are considering measures that would provide local banks with more lending capacity to inject funds into the stagnant regional economy.
According to the financial sector on the 20th, the financial authorities will not pursue a regional differential application of DSR regulations to ease lending restrictions specifically in local areas. A financial authorities official noted, "We are not considering any easing of DSR loan regulations for local areas at all." DSR is a government household debt management tool that embodies the principle of 'lending only what can be repaid.' It is calculated by dividing the annual repayment amount (principal + interest) that the borrower must repay in a year by their annual income, with a 40% DSR restriction applied to bank loans.
Political circles and the construction industry are arguing for the easing of DSR regulations to revitalize the local construction economy, citing the accumulation of unsold dwellings in local areas. The People Power Party requested the government to temporarily ease DSR regulations for purchasing unsold dwellings in local areas during a meeting on the 27th of last month. Additionally, the construction industry suggested on the 20th of last month during a meeting hosted by the Financial Supervisory Service to check the construction and real estate market that the application of DSR in severely affected areas should be gradually eased and that local loans should be exempted from the management goals of household lending by banks.
The financial authorities agree on the importance of the financial role in responding to issues like regional extinction; however, they maintain that providing loans beyond repayment capacity undermines the principles of household debt management. The core of DSR is to prevent borrowers from taking on excessive debt. The approach of increasing household debt to circulate money in the region is also viewed as inappropriate. There is a high likelihood that potential losses will spread to households due to falling housing prices in the future.
Under the currently applied second-stage DSR, the stress rate (add-on rate) is differentiated at 1.2 percentage points for the metropolitan area and 0.75 percentage points for local areas. In this regard, a financial authorities official said, "At the time of introducing the second-stage DSR, the local real estate market was stable in terms of both transaction volume and prices, while the metropolitan area was experiencing rising real estate prices, pushing up household debt," explaining that this was why the add-on rate was raised only for the metropolitan area. The financial authorities left open the possibility that if this trend continues in the first half of the year, the add-on rate for the metropolitan area could be increased for the third-stage DSR coming in July. Initially, the plan was to apply the same add-on rate of 1.5 percentage points for both metropolitan and local areas, but they indicated that fine adjustments could be made depending on market conditions.
The financial authorities are considering measures to grant local banks a higher household lending limit. They stated their position to manage the household debt growth rate within the nominal Gross Domestic Product (GDP) growth rate (projected at 3.6-4.0%) this year while allowing local banks to extend more household loans. They plan to manage the per-borrower loan limit restrictions at the same level as the metropolitan area but aim to increase the overall household loan allowance for local banks to encourage local financial supply. However, considering that borrowers flocked to local banks due to stricter lending management by commercial banks last year, it seems they will allow exceptions specifically for purchasing dwellings located in the region. Kwon Dae-young, Secretary-General of the Financial Services Commission, mentioned on the 8th during the '2025 Economic Major Issues Solution Meeting' that there is a fundamental premise that "the money expanded in local areas remains in local areas."