Korea’s household debt problem

now local financial authorities and
global banks like Morgan Stanley have pointed to growing household debt in
South Korea as one of the biggest risks to the local economy going forward our
kim hye-sung explains why it’s such a huge problem than the measures being
rolled out to hopefully drive down this debt Korea’s household debt has doubled
since 2008 topping 1.34 trillion u.s. dollars as of the third quarter of last
year that’s about the size of the country’s GDP the Bank of Korea says
between 2008 and 2016 household debt – income growth grew at 3.1 percent a year
eight times faster than the average of OECD countries according to the Bank for
International Settlements Korea’s household debt increased the second
fastest in the world in the second quarter of 2018 trailing just behind
China this ballooning debt is attributed to slower economic growth low interest
rates that encourage borrowing and Korea’s deregulation of the housing
market which took effect in 2014 triggering a nationwide buying spree if
people can borrow money use it for their businesses make a profit and pay it back
that’s not in itself a problem but that has outstripped the growth in household
income of around 4 to 5 percent and that borrowed by lower-income people can
cause instability in the financial system when they’re unable to pay it
back figures differ by one by the central bank shows lower-income people
those in the bottom 30% borrowed more than 76 billion u.s. dollars and more
than 1.5 million people took out loans from three or more financial
institutions the 2008 global financial crisis was sparked in the US by a sharp
increase in high-risk mortgages that went into default Korea’s household debt
is not as bad as that but if triggered by some economic shock and people can’t
pay what they owe this debt could potentially drive down consumption and
cost Bam’s to rapidly become insolvent the government’s housing regulations
including a texturized that went into effect last September and the VL case
rate hike has helped slow down borrowing but slowdown in domestic and global
economic growth will make it difficult to reduce the debt experts say it’s more
important than ever to rein in the debt increase improve bank’s fiscal soundness
and come up with supportive measures like longer maturities to help
low-income people especially pay back their loans
Kim Azam Arirang news

One Comment

  • Debt is a two way street. Perhaps the banks in Korea are charging too much interest or giving loans to people who have no jobs or income. Stop blaming "lower income borrowers," a disguise for blaming poor people. As long as banks have to charge interest to make a profit, they will be motivated to increase the loans to the maximum number of people. The greed of banks is equally responsible for debt as the borrower.

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