Banks and other financial institutions should tighten screenings of lending applications by high-risk borrowers, the top financial regulator said Tuesday.
Choi Jong-ku, chairman of the Financial Services Commission, made the remarks at a forum in Seoul, as financial authorities are scheduled to announce a fresh package of measures this month to curb the growth of household debt.
Choi urged banks and other financial institutions to "break away from the practice of unconditionally extending loans" to borrowers if their applications meet lending rules.
Financial Services Commission Chairman Choi Jong-ku (Yonhap)
For highly leveraged homes or heavy debtors, banks and other financial institutions need to strictly check their income and debt, the official said.
Banks and other financial institutions can accurately figure out the financial status of a borrower if they adopt the debt service ratio, Choi said.
The DSR, published by the Bank for International Settlements, reflects the share of income used to service debt. It's regarded as a reliable early warning indicator for systemic banking crises.
Currently, the local financial sector is advised to use the DSR on a voluntary basis.
Household debt stood at 1,388.3 trillion won ($1.25 trillion) at the end of June, up 10.4 percent from a year earlier, according to the Bank of Korea. (Yonhap)