Korea's financial regulators unite behind need to maintain strict household lending curbs

"There is no country where personal loans flow as freely as in Korea." "The debt service ratio is excessively generous."

The heads of South Korea's two main financial regulators spoke in unison Thursday, saying the government's strict household lending controls must continue. Both said aggregate caps on household lending — at the same level as this year — are unavoidable for now if the country is to manage systemic financial risk, not merely stabilize the market.

Financial Services Commission Chairman Lee Eok-won, appearing before the National Assembly's Political Affairs Committee for a joint audit of the FSC and Financial Supervisory Service, said "prudential regulation and management guidance are necessary to maintain financial market stability and manage systemic risk." He was responding to Rebuilding Korea Party lawmaker Kim Hyeong-yeon, who had argued there was no legal basis for the aggregate household lending caps.

When Kim asked how much home prices would need to stabilize before lending restrictions could be eased, Lee said, "From the perspective of international organizations and outside observers, Korea's household debt is far too high."

Responding to a question from Political Affairs Committee Chairman Yoo Dong-su about practices in other countries, Lee said there is no country where personal loans are extended as easily as in Korea. "If left alone, mortgage lending is the easiest product to push. Because the interest income is good, supply just keeps growing," he said.

The remarks were widely interpreted as signaling that the same stringent aggregate lending controls seen this year will remain in place next year as well.

Financial Supervisory Service Governor Lee Chan-jin echoed the sentiment, saying South Korea's debt service ratio "is excessively generous." He added that successive governments had repeatedly loosened and tightened the debt service ratio, leaving household debt now "growing beyond control."

Both officials, however, drew a line at tightening restrictions further. On Wednesday, the FSC pushed back against a rumor circulating on social media that mortgages on homes worth 1.5 billion won ($1.13 million) or more would be banned outright, calling the claim "completely false."

Lee reiterated that position at Thursday's audit, saying the rumor was "false information" and that "such a thing will absolutely never happen."