[EDITORIALS]Borrow, borrow, borrow

Consumer loans are increasing at an alarming rate. The Bank of Korea said that outstanding consumer loans at the end of September stood at 316.3 trillion won ($248.1 billion), an increase of 26 percent from a year ago. The indebtedness of each household was at 22 million won on average, an increase by the same rate. Due largely to the rising ownership and use of credit cards, more sales of goods and services are being made on credit, and more loans are being taken out on the cards. As a result, outstanding debt on such credit sales totaled 33.1 trillion won on Sept. 30, marking a 37 percent increase compared with a year ago.

Household loans granted by banks made up the largest share of the increase. The Financial Supervisory Service said household bank loans outstanding on Sept. 30 totaled 137 trillion won, up by more than 40 percent in a year. The increase in household debt is primarily due to consumer spending, housing and for individual business capital. But it is hard to be critical of consumer spending and borrowing for that purpose at a time when, with exports down and business capital investment sliding, consumer spending is helping to prop up the economy.

What is alarming about the situation is the possibility of serial default. Simply, the rate of consumer debt increase exceeds the pace at which household income grows. The increase in credit card debt is especially ominous. The credit card default rate was almost double the bank loan default rate, which stood at 1.67 percent.

The dangers from a rapid increase in consumer loans is in personal bankruptcies. We saw not long ago what personal bankruptcy can do to the financial industry. Massive personal loan defaults and a real estate price collapse led to the rapid deterioration of financial institutions, which eventually required more than 100 trillion won in government and public funds to bail out.

An effort on the part of consumers to keep borrowed spending in line with personal income is needed. Lending institutions must also tighten credit management functions to be more selective in making loans. These efforts must be accompanied by a government policy to stimulate business investment, creating a greater range of demand for capital in the economy.