Ticking time bomb
Published: 02 Mar. 2015, 23:02
rate cuts and easing of mortgage-related regulations, the rise is too rapid.
Mortgage-backed loans take up 95 percent of bank loans. Household debt totaled 1,029.3 trillion won as of the end of last year, up 6.9 percent from the same period last year. Considering that real incomes grew just 1.3 percent last year, the rise in individual loans is far beyond normal and is not affordable. But the trend is worsening this year as the home-backed loan data so far suggests.
Moreover, the quality of household debt is worsening. Debt has exceeded household incomes and loans taken out by low-income and poor-credithistory borrowers are increasing.
Mortgage-backed loans are used for businesses or for families to just get along month to month instead of for home purchases. The fact that homebacked loans increased sharply during winter when home transactions and moving traditionally are lackluster suggests the borrowings mostly went to sustain individual businesses or household expenses.
If consumer loans continue to increase at the current pace, they are bound to go bad and could accumulate into a financial catastrophe. The government and financial authorities argue the situation is still controllable. But they must be watching the rise with alarm and should do something try to contain further growth. If household debt explodes, it will be too late for emergency measures. Authorities
must study the rise and control it while implementing measures to improve loan practices.
with the Korea JoongAng Daily
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