Press Release

MINISTRY OF STRATEGY AND FINANCE

www.mosf.go.kr HOUSEHOLD DEBT MANAGEMENT MEASURES

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The government announced a new round of household debt management measures that focus on increasing the portion of fixed-rate amortized loans and tightly applying ability-to-repay rules.

Following is a summary of the measures.

1) Improve Household Debt Quality

- Raise the portion of fixed interest rate mortgage loans with amortization schedules - Take into account possible interest rate hikes when assessing loan repayment ability

- Cut contributions to the Housing Finance Credit Guarantee Fund, which are required to mortgage lenders, based on the portion of fixed rate mortgage loans with amortization schedules

- Encourage financial institutions to issue covered bonds, which will help them finance long-term fixed-rate borrowings

- Banks to be promoted to develop their own guidelines for extending mortgage loans

2) Encourage Lenders to Strictly Apply the Ability-to-Repay Rule - Recommend lenders to strictly apply the Ability-to-Repay rule

- Encourage lenders to conduct a stress test¹ with higher interest rates when extending variable interest rate mortgages

- Advise lenders to take into account other debt when assess borrowers’ mortgage repayment capability

3) Increase Soundness of Nonbank Financial Institutions

- Require cooperative financial institutions to tighten non-residential mortgage underwriting standards

- Temporarily give a loan loss provision cut for amortized mortgages

- Allow cooperative financial institutions to apply higher loan-to-value ratios to loans transferred from existing agreements to agreements with amortization schedules

- Monitor the credit score-based loan situation in nonbank financial institutions and improve the credit scoring system

4) Enhance Household Debt Soundness

- Require banks to increase capital buffers taking into account their household loan levels

- Increase the Korea Housing Finance Cooperation (KHFC)’s authorized capital from 2 trillion won to 5 trillion won

1 Standard Chartered Korea conducts stress tests with higher interest rates by 2 percentage points and controls loan amount for annual debt service to be less than 80 percent of annual income

Embargo: Release Date: July 22, 2015

Contact Information: Yoon Ji-hee (044-215-2754/ Financial Market Division)

Press Release

MINISTRY OF STRATEGY AND FINANCE

www.mosf.go.kr

- Bank of Korea to extend its range of collateral and accept the mortgage backed securities (MBS) issued by the KHFC

- Encourage public housing funds and public pension funds to actively participate in the MBS market - Promote overseas MBS issuance, which will be worth around US $500 million, to broaden the investor base

- Introduce KHFC non-recourse loans as a pilot program

- Regularly monitor the household debt situation through a joint investigation committee of government, financial institutions and credit reporting agencies

- Bank of Korea and Financial Supervisory Service to stiffly conduct stress tests of the banking sector

- Financial regulators to monitor financial institutions’ lending data concerning borrowers, loan agreements and soundness