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FSC exempting some borrowers from new ratios

Chairman says lower income customers may not be held to DSR
Oct 17,2018
Financial Services Commission (FSC) Chairman Choi Jong-ku said the government will not apply new higher lending standards to loans provided to lower income households and young people starting off in society.

He also expressed his negative view on initial coin offerings (ICO) and said the government was taking an interest in discussions about Woori Bank’s governance structure.

The chairman’s comments were made during a press briefing held late Monday and come ahead of the government’s announcement on standards for debt-service-ratios (DSR), which will go into effect later this month.

“Financial products for low income households that will not be included in the DSR evaluation will be expanded,” Choi said.

The DSR is considered to be a more stringent measure of affordability when compared with debt-to-income or the loan-to-value ratios. It determines the amount that a person can borrow based on the loans that they have from other financial institutions in addition to interest payments, principle returns and annual income. The higher the ratio, the less a person can borrow.

Concerns are on the rise that the tougher requirements will result in fewer loans to those who most need them. Choi said the DSR is being adopted in hopes of reducing overall household debt in the country.

“Last year, Korea’s household debt grew at 8.1 percent while the nominal GDP increased 5.3 percent,” Choi said. “This year, household debt growth is likely to slow because the GDP growth is also low.”

The FSC chairman said the government will introduce two different DSR ratios.

“If we only introduce a single figure, such as limiting the DSR ratio to 70 percent, it will be difficult to manage loans with DSR ratios exceeding 120 percent,” Choi said.

Currently, regional banks have more risky loans than commercial banks. According to a study by the Financial Supervisory Service, loans borrowed on DSR evaluation accounted for 72 percent. The average loan DSR ratio at commercial banks was 52 percent while the ratio at regional banks was 123 percent.

During the press briefing, Choi expressed his negative view on ICOs.

“While there is a range of opinions from various experts, New York University Professor [Nouriel] Roubin believes that virtual currencies are a source of scams,” Choi said.

Choi added that because ICOs are related to a wide variety of issues, the FSC alone cannot determine policy, and he will be talking with other departments about the offerings. While calls are being made for Korea to permit ICOs, as they are considered a new investment and are especially interesting for start-ups, Choi has held a negative view on the offerings. During a National Assembly hearing last week, he commented that ICOs still involve considerable uncertainty.

On Woori Bank’s efforts to change its governance structure, Choi said while the position of the government is not to intervene in Woori Bank’s management decisions, as the largest shareholder of the bank it is compelled to take an interest in governance structure changes that will result if Woori Bank becomes a financial holding company again.

“As a shareholder with an 18 percent stake in Woori Bank, the government has no choice but to take an interest in the governance structure,” Choi said. “The government’s stake value will only improve when the bank’s business does well.”

Woori Bank on July 20 applied to convert back to a holding company structure. The bank plans to hold a board of directors meeting on October 26. At the meeting, it will discuss whether to separate the positions of chairman and president or allow the chairman to act as the new financial holding company’s president.


BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]