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Regulator to call for banks to focus on risks of household debt

The top financial regulator said Monday it will order banks and other financial institutions to improve their risk management for household debt by restricting high-risk debt and improving emergency backstops.

Choi Jong-ku, chairman of the Financial Services Commission, told a meeting of journalists that the FSC could amend the calculation system of a loan-to-deposit ratio to help financial institutions better manage risks of household debt.

Among the possible measures is to draw a line between household and corporate loans in calculating the ratio, Choi said.

Financial Services Commission Chairman Choi Jong-ku. (Yonhap)
Financial Services Commission Chairman Choi Jong-ku. (Yonhap)

The measures will also be aimed at financial institutions to improve the structure of household lending, while encouraging them to pour money into startups, Choi said.

Details of the measures will be announced by the end of this year or early next year, Choi said.

Choi has called for financial institutions to be overhauled so that the necessary funds are effectively channeled into innovative businesses and sectors as part of the government's push for job creation.

At the end of September, South Korea's household debt stood at 1,419.1 trillion won ($1,297 billion).

Although there is little risk that household debt may spark a financial crisis, rising debt chokes off private consumption and makes it difficult for the central bank to raise its key rate amid global monetary tightening. (Yonhap)

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