BACKGROUND
The Korean government announced last year “Comprehensive Measures on Household Debt”(June 29, 2011) and “Measures to Increase Accessibility of Low-income Households to Financial Services”(April 15, 2011) to preemptively manage household debt growth.
In 2011, household loans increased by 7.6%, lower than 8.1% in 2011. However, household lending in the non-banking sector increased by 9.9%. Particularly, household loan growth by cooperative financial institutions and insurance companies still remains high.
If household lending by non-banking institutions keeps growing at such a rapid pace, it would undermine the overall soundness of the sector and adversely affect our economy and financial market in the long term.
Against this backdrop, the government came up with follow-up measures to keep the growth of household loans by the non-banking sector under control.
(1) The measures aim to keep household loan growth particularly by cooperatives and insurers at manageable levels and manage household lending in a sound manner. At the same time, the government will ensure the “Comprehensive Measures on Household Debt” (June 29, 2011) are implemented as scheduled.
(2) In order to minimize side effects that these measures could bring to the economy and low-income households, these new lending rules will be phased in gradually, applicable to newly extended loans.
(3) We will also make sure the “Measures to Increase Accessibility of Low-income Households to Financial Services” are implemented as scheduled.
MEASURES TO CURB COOPERATIVE FINANCIAL INSTITUTIONS’ LENDING
1. Stricter loan-to-deposit (LTD) rules
Cooperative financial institutions will be required to keep their LTD ratios below 80%. Cooperatives with LTD ratios over 80% will be required to bring down the ratios below 80% within two years. For cooperatives whose LTD ratios exceeding the average ratio of the sector, they will be under supervision to keep the ratios to a standstill at the levels of end-2011.
* Please read the attached file for details.