Chairman Yim Jong-yong of the Financial Services Commission said on Oct. 18 that DTI regulations will not be applied to collective borrowings, and the FSC has no intention to strengthen the DTI standards currently set at 60 percent of annual income of the borrowers.
The FSC chairman made the statement before a session of the Political Affairs Committee of the National Assembly Inspection of the government.
He went on to add that it is hard to apply the DTI regulations to collective loans due to the new apartment sales system, which is a unique apartment allocation system. The DTI regulations prohibit the borrowings to be repaid from surpassing 60 percent of the borrower’s annual income.
Banks apply the DTI regulations to mortgage loans, but the collective borrowings have not been subject to the regulations. However, voices of late have been calling for of the DTI regulations to be applied to collective loans too, as the amount of collective loans have been rising rapidly.
Asked if the FSC would consider strengthening the DTI regulations, Chairman Yim said it is not desirable to talk about the regulations too often, as the government boosted the amount of repayable loans to the maximum of 60 percent of the annual income from 50 percent to fuel the economy in July 2014.
The FSC chairman said the Korea Land and Housing Corp. suspended the Nesting Loan and Eligible Loan policies so that the remaining amount of loans would be loaned to general citizens exclusively to see that as many average people or entities entitled to the policy loans can get the loans as possible.
From Oct. 19, the qualification to be eligible for a Nesting Loan has been cut to below 300 million won from 900 million won (in terms of residential house value) while the loan limit was reduced to 100 million won from 500 million won. Yim said the Nesting Loan has far surpassed the original limit of concessionary loans, which are 10 trillion won, to around 20 trillion won, and they will do everything they can to see that the loan is available for average citizens, which is who the loan was intended to be for at the time it was established.
Some indicated the need for reinstating the Safety Turnaround Loan to improve the quality of household debt positions.
The Safety Turnaround Loan only charges 2 percent annual fixed interest and loans on the books totaled 40 trillion won as of March last year. Borrowers took out the low-interest loans on the condition that they pay off their household debts.
The FSC chairman said that in order to reinstate that particular loan policy, the Korea Land and Housing Corp. should have its capital boosted, and he hopes that the National Assembly would take care of the legal and funding matters associated with such a capital increase.
The Financial Services Commission was established in 2008 after a series of changes in Korea’s financial supervisory system. In the wake of the 1997 Asian financial crisis, there was a growing need for an integrated supervisory authority to oversee the financial industry.
The Financial Supervisory Commission, the predecessor to the current Financial Services Commission, was founded in April 1998 as a single supervisory authority integrating financial supervisory functions of the former Ministry of Finance and Economy - currently Ministry of Strategy and Finance, MOSF - and the Bank of Korea.
In January 1999, the Financial Supervisory Service was founded under the guidance and supervision of the FSC to carry out examination of financial institutions along with enforcement and other oversight activities as directed or charged by the FSC.
In February 2008, the Financial Supervisory Commission was integrated with the Financial Policy Bureau of the then Ministry of Finance and Economy to become the Financial Services Commission.
