The photo shows the loan window of a major bank in Seoul. /News1

The financial authorities will conduct on-site inspections targeting banks that have excessively handled household loans beyond this year's first-half goals. Examination personnel from the Financial Supervisory Service (FSS) will be dispatched to inspect whether there are issues in the processing of mortgage loans, which is likely to be a significant burden for the banks. This could lead to a considerable strengthening of household loan management.

According to the financial sector on the 24th, the FSS is coordinating which banks will be subject to on-site inspections and what the key inspection items will be. The on-site inspections are scheduled to take place later this month. Earlier, the FSS summoned deputy presidents in charge of household loans of banks on the 16th to report on the status of household loan processing in the first half of this year. At that meeting, NH Nonghyup Bank and SC First Bank were reportedly identified as banks with insufficient management of household debt. Both banks exceeded the target significantly in their monthly and quarterly increases in household loans.

The financial authorities have begun to apply pressure on banks because they judged that the surge in household loans is concerning. The monthly increase in household loans in the financial sector jumped from 4.2 trillion won in February to 5.3 trillion won in April and 6 trillion won in June. This is influenced by the rapid rise in housing prices in the metropolitan area, including Seoul, and the KOSPI index surpassing 3,100, leading to a heated demand for loans referred to as '영끌' (borrowing to the last drop).

Graphic=Jeong Seohui

The financial authorities plan to closely inspect cases where loans have been processed to circumvent the total debt repayment ratio (DSR) regulations. The current DSR regulation prevents borrowers from being able to pay back annual loan principal and interest exceeding 40% of their annual income. However, if the loan term is extended to 40 or 50 years and future income expectations are set high, it can reduce annual repayments and increase loan limits. The financial authorities plan to assess whether such practices of loan processing are widespread.

They will also evaluate whether the 'high DSR target proportion' is being maintained. The financial authorities are requiring banks to manage the proportion of high DSR loans, where DSR exceeds 70% and 90%, to within 5% and 3% of total loans, respectively. They plan to inspect whether this target ratio is being properly adhered to.

The financial authorities are also keeping an eye on the mutual finance sector. On the 19th, the FSS summoned the heads of lending departments of mutual finance associations to emphasize the importance of managing household loans and maintaining soundness. An FSS official noted, "We are closely watching the trends in household loans within the mutual finance sector," and added, "If management is found to be poor, we will promptly conduct on-site inspections."