[EDITORIALS]Drowning in household debt

Home > Opinion > Editorials

print dictionary print

[EDITORIALS]Drowning in household debt

Concerns are rising over increasing household debt. According to the Korea Institute of Finance, individuals had 316.3 trillion won ($241.3 billion) of outstanding debts to banks, credit-card companies, installment-financing firms and other financial institutions as of the end of September ?nearly 50 percent above the 211.2 trillion won at the end of 1997. If the trend continues, household loans are estimated to exceed 430 trillion won by the end of this year and rise close to 500 trillion won in two years.

The surge in household debt is attributable to increased consumer spending by individuals. Last year, individuals' consumption and investment propped up the domestic economy. The problem is that more debts result in more non-performing loans. Considering that consumption does not rise without loans, financial institutions, including banks and credit-card firms, are responsible for the increase. In fact, domestic commercial banks had some 128 trillion won in loan exposure to households at the end of 2001, up 42 percent from the previous year. Local households owed 447 trillion won on their credit cards at the end of last year, a staggering 88 percent increase from 2000.

The risk of bad loans is on the rise. In particular, 8.6 percent of the credit card debt was overdue at the end of September, six times as high as the ratio of bank loans in arrears. The number of blacklisted borrowers topped 2.5 million at the end of 2001. Unable to repay their debts, some people even commit suicide. There is the possibility of a chain of personal bankruptcies if interest rates go back up and real-estate bubbles burst.

The government has begun to respond, ordering commercial lenders to set aside more money against possible loan losses and imposing stricter rules for issuing credit cards. Those measures are necessary for preventing bad household loans from causing another financial crisis, although the government should have taken them earlier.

More fundamentally, the government should complete corporate and financial restructuring and stabilize the business-labor relationship, so that money can flow to more productive areas such as facilities investment, rather than to households.
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)

What’s Popular Now