The Korea Federation of Banks and the Financial Services Commission have jointly announced new lending guidelines for banks in their bid to curb household debt. The measure is expected to slow the rapid rise of home loans extended by banks, but a soft landing of the worsening debt problem requires more comprehensive solutions.

The new lending guidelines call for banks to assess applications for home loans based on borrowers’ income and ability to repay instead of their ability to provide collateral.

The new rules, which will be introduced in Seoul and Gyeonggi Province in February next year and the rest of the country in May, also require banks to extend amortizing mortgages instead of bullet loans.

A fully amortizing mortgage is a loan in which both principal and interest are paid off through scheduled installments by the end of the loan term. On the other hand, bullet mortgages only require interest payments each month and the entire principal can be paid at the end of the loan term.

To guard against defaults, banks are also required to assess a borrower’s debt service ratio, which is a more accurate gauge of the customer’s ability to repay than the currently used debt-to-income ratio.

The DSR measures the ratio of total required household debt payments -- including mortgage and other consumer debt payments -- to total disposable income. For borrowers whose DSR tops 80 percent, banks are supposed to step up monitoring to prevent possible defaults.

These toughened lending rules are intended to slow the growth of household debt, which began to pick up speed since August last year. At the time, the government raised the DTI from 50 percent to 60 percent to buoy the property market and stimulate the economy.

Recently the state-run think tank Korea Development Institute advised the government to lower the DTI ratio back to 50 percent, stressing that keeping the financial system sound is more important than boosting the housing market.

But the FSC has not heeded the advice. It appears to be trying to juggle between curbing household debt and sustaining the housing market. Given the fragile recovery of the economy, the commission’s position is understandable.

Yet the government needs to go much further if it is determined to defuse the household debt bomb. The new bank lending rules are limited in their scope of effects as they will only be applied to new loans.

Measures are needed to defuse the threat posed by the huge outstanding household debt, which totaled 1,166 trillion won ($1.02 trillion) as of September, reaching 80 percent of Korea’s gross domestic product.

More than half of the debt is held by low-income households. If domestic interest rates go up following the expected U.S. rate hikes, these households would feel the increased debt burden most acutely.

Furthermore, about one-third of the household debt is held by people who have taken out loans from multiple financial institutions. These debtors are more vulnerable to rate hikes than other households.

And compared with banks, nonbank financial institutions are exposed to greater risks as they have extended loans to less creditworthy borrowers.

A soft landing of the debt problem cannot be expected without addressing these problems.