SEOUL (Reuters) – South Korea will tighten borrowing rules from the second half of this year to manage the growth in household debt, the financial regulator said on Thursday, amid expectations the central bank will ease monetary policy further.
From July, the Financial Services Commission (FSC) said it would tighten “stress debt-to-service ratios”, which take into account the risk of volatility in borrowing costs when determining how much money households can borrow.
The rule was first introduced in February 2024 and tightened in September to tame household growth in debt in Asia’s fourth-largest economy, which is one of the most indebted in the world.
South Korea has complex borrowing rules for households, especially on mortgage loans, which are linked to income as well as the value and region of houses purchased.
“There is a need to maintain a consistent and firm stance on household debt management under complex macroeconomic conditions and property market outlook,” the FSC said in a statement.
The Commission said it aimed to keep this year’s household debt growth capped at 3.8%, the pace of nominal economic growth expected for the year, to keep the ratio of household debt to gross domestic product stable at around last year’s 90.5% level.
Earlier this week, the Bank of Korea said there would be one or two more cuts in interest rates this year, after lowering its benchmark rate by 25 basis points to 2.75%.
At the end of 2024, South Korea’s household debt stood at 1,927.3 trillion won ($1.34 trillion), up 2.2% from a year earlier and the fastest growth in 2-1/2 years.
($1 = 1,434.1000 won)
(Reporting by Jihoon Lee; Editing by Ed Davies)
