Tougher mortgage rules await smaller Korean banks

The scheme is an attempt to help stabilise home prices.

Korean second-tier banks will be subject to more stringent mortgage rules called Debt Service Ratio (DSR) by June, reports Yonhap. The move is an attempt from authorities to dent the growth of household debt and stabilise home prices.

The DSR measures all principal and interest payments as a proportion of annual income. The scheme is expected to help better a borrower's repayment ability and reduce the risk of default.

According to the Financial Services Commission (FSC), the stringent rules will be applied to home loans by savings banks and other mutual savings banks. Major commercial banks have initiated the adoption of the DSR back in March 2018.

"The growth pace of household debt has been stabilising," FSC Vice Chairman Sohn Byung-doo said in the statement. "However, steady efforts are needed to slow the growth of household debt because it could pose a burden on economic growth and consumption."

Banking data show that outstanding loans consisting of household loans and credit card spending grew by $2.8b (KRW3.3t) to hit a record high $1.3bt (KRW1.540t) as of end-March.