Financial Services Commission Chairman Lee Eok-won (center) listens to panelists at a public forum on real estate finance policy held Wednesday at the Korea Federation of Banks building in Jung-gu, Seoul. [Yonhap]
Financial Services Commission Chairman Lee Eok-won (center) listens to panelists at a public forum on real estate finance policy held Wednesday at the Korea Federation of Banks building in Jung-gu, Seoul. [Yonhap]

With the Bank of Korea widely expected to raise its benchmark interest rate through its Monetary Policy Board on Thursday, calls emerged Wednesday for caution about expanding loan limits for young borrowers. Opposing voices argued that aggregate loan controls should be eased over the medium to long term to help borrowers struggling to live near their workplaces.

Kim Young-do, a senior research fellow at the Korea Institute of Finance, said at the "Public Forum on Real Estate Finance Policy" held Wednesday at the Korea Federation of Banks building in Jung-gu, Seoul, that the main regulatory tools currently employed by financial authorities — including the debt service ratio and other macroprudential measures — are difficult to touch given their potential impact.

"There are growing calls in society to ease aggregate loan controls, but loosening them indiscriminately without complementary safeguards could place a major burden on the macroeconomy and the Korean economy as a whole," Kim warned.

His concern centers on the risk that easing aggregate controls could trigger a surge in household lending and deepen systemic risk, given that the household debt-to-GDP ratio is hovering in the high-80 percent range.

Kim also argued that a "macroprudential management levy" should be built into mortgage costs as a demand-side measure. "If a levy is imposed, costs will rise and demand could fall," he said, adding that it could be applied to borrowers using high-value properties as collateral, multi-home owners and those taking out large loans.

He added that the Bank of Korea must weigh multiple factors beyond household debt, including broader economic conditions, and that there are limits to conducting monetary policy with an eye only on real estate. "Financial authorities' regulatory policy has focused on 'volume,' but if a macroprudential management levy is introduced, it would function as a price-adjusting tax — and the effect would be particularly pronounced," he said.

Panelists at the forum were broadly skeptical of easing aggregate loan controls.

Park Sun-young, a professor of economics at Dongguk University, said deregulation runs counter to the fundamental purpose of financial policy. "We must prevent borrowers from taking on excessive debt relative to their income and falling into financial vulnerability," she said. "We need to think carefully about whether it is desirable to expand loan limits for young people at a time when further benchmark interest rate increases are expected."

She added that easing loan restrictions for young borrowers would be "like drinking saltwater when you're thirsty," and stressed that the issue should be addressed through public housing supply policy and fiscal measures instead.

The macroprudential management levy proposed by Kim drew support from Seo Young-sang, a researcher at SK Securities. "Raising borrowing costs can stabilize housing demand," Seo said. "However, directly imposing that levy on individuals would be difficult. The responsibility for macroprudential management should naturally fall on the government and financial institutions."

Kim Mi-ru, a researcher at the Korea Development Institute, offered a contrasting view. "We need to ask whether the ultimate goal of aggregate household debt controls is to stabilize household debt or to stabilize the real estate market," she said. "If the real estate market stabilizes, short-term aggregate controls may be warranted, but Korea's household debt is not yet at a level that poses a serious problem."

She added that the focus should be on helping those who face hardship because they cannot live close to their workplaces. "Aggregate controls should be maintained only in the short term and eased over the medium to long term," she said.

On the proposed macroprudential levy, Kim Mi-ru cautioned that banks could dilute its effect by trimming their spread on one side while raising it elsewhere. "The actual impact would need to be studied," she said.

A subsequent open discussion touched on a range of proposals, including relocation loans, supply-side financial policy and measures to expand access to credit for young borrowers.

FSC Chairman Lee Eok-won said the purpose of holding Wednesday's forum was not to arrive at a definitive answer. "Real estate issues are tangled like a ball of thread — the intent is to narrow down the range of views," he said. "We will work toward the most reasonable solution that everyone can at least understand."


hyuk@heraldcorp.com