FSC chief vows to curb household debts, stabilize financial market

The head of South Korea's financial regulator said Monday that he will redouble efforts to reduce high household debts via the implementation of tighter curbs.

Kim Byoung-hwan, the chief of the Financial Services Commission, also said the regulator will remain vigilant against potential volatility in the financial market.

"The very reason for our financial system's vulnerability to external shocks is relatively high indebtedness and dependence on debts," he said.

"We need to change a debt-dependent structure to secure stable and vibrant growth as well as financial stability," the FSC chief said.

Kim said household debts are feared to increase further on possible rate cuts and a recovery in the home market.

"We plan to tighten the grip on such loans via an extended implementation of debt service ratio," he said.

The debt service ratio, which measures how much a borrower has to pay for principal and interest in proportion to his or her yearly income, serves as a ceiling on aggregate lending.

Household loans extended by banks in South Korea rose for the third consecutive month in June, led by a rise in mortgage loan growth, amid an extended restrictive monetary policy mode.

Banks' outstanding household loans had come to 1,115.5 trillion won ($805 billion) as of end-June, up 6 trillion won from a month earlier.

Banks' home-backed loans rose 6.3 trillion won to 876.9 trillion won last month, accelerating from a 5.7 trillion-won on-month gain the previous month.

Last month, South Korea's central bank kept its policy rate unchanged at 3.5 percent for the 12th consecutive time since February last year.

The rate freezes came after the BOK delivered seven consecutive rate hikes from April 2022 to January 2023.

But Bank of Korea Gov. Rhee Chang-yong said the trend of slowing inflation has been in place, and conditions have ripened for a monetary policy reversal at an appropriate time. (Yonhap)