In his inauguration speech Wednesday, new Financial Service Committee Chairman Choi Jong-ku addressed skyrocketing household debt, indicating he may push to adopt the debt-service ratio in household loans to toughen the lending process.
“(The FSC) will advance the credit rating systems in financial firms by laying out ones based on the debt-service ratio,” Choi said in a speech at FSC headquarters in central Seoul.
He described the nation’s household debt as “the biggest latent trouble in the economy,” and vowed a pangovernmental effort, while building safety nets for the indebted self-employed.
FSC Chairman Choi Jong-ku delivers an acceptance speech in Seoul on Wednesday. (FSC)
Household debt has been rising, driven by a surge in borrowings from mortgage loans. It reached 1,344.3 trillion won ($1.19 trillion) as of 2016 and has been on a steeper rise since 2015.
The faster increase rate coincided with the former Park Geun-hye administration’s policy move to ease regulations on household borrowing in June 2014, which allowed home buyers to borrow up to 70 percent of their property value and 60 percent of their income for mortgage payments, up 10-20 percent from before deregulation.
During his presidential campaign, President Moon Jae-in pledged to strengthen lending rules by lowering the bar for the loan-to-value ratio and debt-to-income ratio, while introducing new criteria to assess the debt serviceability of a borrower, such as the debt-service ratio.
The leadership vacuum among financial policymakers since President Moon took office in May has delayed tackling the national economy’s powder keg, which may jeopardize borrowers of mortgage loans.
Choi’s inauguration Wednesday, two days after passing a confirmation hearing in the National Assembly, is expected to facilitate the nomination of top commissioners in financial oversight bodies. On Thursday, Moon appointed Kim Yong-beom, the secretary-general of the FSC, as its new vice chairman.
Top executives are expected to roll out a plan to address household debt in August.
Along with the household debt issue, Choi stressed the importance of enhancing financial consumer protections during his speech.
Choi asked the FSC to turn attention from developing financial services -- which he said might ostracize consumers -- to protecting ordinary consumers, which could begin by helping them gain a better understanding of financial activities.
Moreover, Choi pledged to support the nation’s wage-led growth in shaping financial policies, while shifting away from its focus on debt-driven growth, which he said had ended in a “short-lived boom.”
However, Choi did not mention the possibility of overhauling the financial authorities. As a presidential candidate, Moon hinted at reassessing the roles of the FSC by dividing it between policymaking and regulating.
During the confirmation hearing Monday, Choi said no consensus on the best way to reshape the financial authorities had been made.
By Son Ji-hyoung (email@example.com