SEOUL, April 29 (Xinhua) -- South Korea's financial regulator unveiled a series of measures Thursday to curb the massive household debt that grew faster last year amid the record-low policy rate to tackle the COVID-19 pandemic.
The country's household debt growth slowed from 11.6 percent in 2016 to 8.1 percent in 2017, 5.9 percent in 2018 and 4.1 percent in 2019 respectively, according to the Financial Services Commission (FSC).
The growth rate rebounded to 7.9 percent in 2020 as the central bank slashed its key rate to an all-time low of 0.50 percent last year to address an economic downturn from the pandemic.
The FSC said the household debt has been seen as a potential risk factor to the financial system as the debt is big in scale and grows fast in speed compared to other major economies.
The ratio of household debt to gross domestic product (GDP) stood at 102.8 percent in the fourth quarter of 2020 for South Korea, higher than 78.8 percent for the United States, 91.4 percent for Britain and 68.0 percent for France respectively.
To slow the spike in debt, the financial regulator will gradually tighten the debt-service ratio (DSR), which measures the percentage of all principal and interest payments, including the mortgage and credit loans repayment, to annual income.
The regular planned to fully implement the DSR program for all borrowers from July 2023, aiming to cut the annual growth rate of household debt to 5-6 percent this year and below 5 percent next year.
The 40-percent DSR ratio will be applied in July 2023 to borrows with an outstanding loan of more than 100 million won (903,000 U.S. dollars).
Ceiling on the loan-to-value (LTV) ratio, or a percentage of mortgage loan to home value, will be imposed on non-mortgage loans, such as the borrowing to purchase land and commercial buildings. All financial institutions will be subject to the regulation.
Meanwhile, the FSC will introduce policy mortgage loans with a maturity of up to 40 years to help people aged 39 or lower and newly-wed couples purchase first homes with a lower burden of debt repayment. Enditem
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