Gov’t aiming to cut household debt

Finance Minister Hyun Oh-seok said the government is planning extra measures to tackle record household debt that poses risks for the financial system and the economy.

The measures will help low-income households reschedule their debt and focus on changing short-term borrowing into longer-term liabilities, Hyun, 63, said in Sydney yesterday, where he’s attending a meeting of the G-20 countries. The likelihood of systemic danger from household debt isn’t high, he said.

Managing risks from household borrowing is one of the government’s top priorities, with the prospect that financial strains will increase, especially for lower-income families, when interest rates start to rise. The next move in Korea’s benchmark borrowing costs will be up, according to a Bloomberg News survey of economists.

The median forecast in a Bloomberg survey of analysts this month was for a level of 2.75 by the first quarter of next year.

Some economists see interest rate increases in the third or fourth quarter of this year. Goldman Sachs is unusual in forecasting a cut in the second quarter.

“Household debt will undermine the increase of private consumption and at the same time, it will be burdensome for the lower-income class,” Hyun said.

Home loans and credit extended to households rose to a record 991.7 trillion won ($923 billion) at the end of September. Rates that commercial banks use for determining interest payments fell to a record low of 2.86 percent last month, according to the Korea Federation of Banks.

While Hyun described the outlook for Korea’s economy as “promising,” he said that global policy coordination is important as the U.S. Federal Reserve pares the bond-buying that has supported that nation’s recovery from the global financial crisis.

Bloomberg