The cheap loan binge is over

Home > Opinion > Editorials

print dictionary print

The cheap loan binge is over

Market interest rates gained a fresh upward traction after the U.S. Federal Reserve bumped up the policy rate target by another 25 basis points to 2.0-2.25 percent last month after similar increases in March and June. The U.S. central bank signaled another hike in December and three more next year.

The decisive normalization in the Federal funds rate has taken a direct hit on the Korean market. The Bank of Korea (BOK) has kept its policy rate unchanged at 1.50 percent since November. Although the short-term rate is bound, yields in the longer curve and market rates are galloping away. As of Oct. 1, mortgage lending rates by major commercial banks jumped by 10 to 12 basis points from three weeks ago to hover around maximum 4.5 percent. Sooner or later, mortgage loan rates will pass 5 percent per annum.

Higher interest rates will help those whose income relies on interest returns. But the burden will land heavily on multiple debtors. Household debt is dubbed as the epicenter for a potential crisis. According to the BOK, household credit reached 1,493.2 trillion won ($1.34 trillion) by the end of June, up 105.3 trillion won from a year ago.

Another problem is the prediction that jobs will continue to decrease. Job and income insecurity aggravates household woes. Higher interest rates against insecurity will further dampen consumption and economic activities. Those in debt with low incomes will be first to feel the squeeze. Loan delinquencies will translate into financial crisis.

Monetary policy has changed course to tightening around the world. Individuals, financial institutions, and government all must gear up for higher interest rates. Individuals must control loans. Excessive lending for real estate investment could be risky. Financial institutions must toughen loan evaluation and refrain from raising their lending rates too fast. The cheap loan binge is over. Authorities must examine the financial support system for the working class.

JoongAng Ilbo, Oct. 2, Page 30
Log in to Twitter or Facebook account to connect
with the Korea JoongAng Daily
help-image Social comment?
s
lock icon

To write comments, please log in to one of the accounts.

Standards Board Policy (0/250자)