Loans Up Sharply to Personal Borrowers

The outstanding balance of household debts last year reached 264.1 trillion won ($202 billion), up 51.1 trillion won from a year ago, the Bank of Korea said Friday.

Household debts include loans from financial organizations and purchases made on account.

Such debts were on the rise due to increased cash advances and card loans, which rose by 16.39 trillion won last year, almost quadruple the 1999 figure. Outstanding card balances were 29.9 trillion won at the end of last year, accounting for 11.3 percent of total household loans. Mortgages were up 7.6 trillion won and purchases on credit rose by 3.7 trillion won compared to the previous year. The outstanding balances were 54.1 triillion won for mortgages and 25.8 trillionwon for credit buying.

The central bank said private debts were on the rise because household consumption growth outpaced economic growth last year.

It said that household clients increased their demand for money to cope with skyrocketing deposit money for apartment leases. Financial institutions also targeted consumer loans as the attractiveness of corporate lending waned.

Household loans accounted for almost half of total loans outstanding by financial organizations at the end of last year, up sharply from their 39.6 percent at the end of 1999. Toward the end of last year, default rates began to rise as the economy faltered. The default rate in January was 2.9 percent. "Household loan defaults are serious since more than half the total outstanding cash advances last year were overdue for over a year," said Kim Doo-shik of the central bank. "If the default rates keep on moving up, then the nation's financial sector, including credit card companies, will be affected."

President Kim ordered the ruling Millennium Democratic Party leaders to come up with measures to combat high interest rates charged by credit card companies (up to 29 percent) and loan sharks, some of whom charge up to 360 percent annual interest.

by Cheong Chul-gun / Oh Jung-hee