Personal debt restructuring programs introduced in Korea

Economy

Published: 14 Jul. 2022, 17:02 Updated: 14 Jul. 2022, 18:56

Personal debt restructuring programs introduced in Korea

President Yoon Suk-yeol in Seoul on Thursday. The key issue being discussed was individual debt as the Bank of Korea raised the key interest rates 0.5 percentage points the day before in an efforts to lower inflation. {OFFICE OF THE 20TH PRESIDENT]

Rising rates are being combated with a number of programs aimed at lowering the cost of money for individuals facing high interest payments.

"If the government doesn't offer support preemptively, costs will only increase," President Yoon Suk-yeol said. "If the base of the economy collapses, the foundation of our national economy will fall."

The initiatives come as loan payment suspensions, put into place at the beginning of the pandemic, come to an end in September.

Adjusting the principal and interest on loans will be the focus rather than delaying payments, which was the policy of the Moon Jae-in government.

According to the Financial Services Commission (FSC) on Thursday, debt restructuring programs for the self-employed and small businesses struggling with payments will begin in October.

Korea Asset Management Corp. (Kamco) will buy 30 trillion won ($22.8 billion) of bad debts. The payments on the loans will be postponed from one to three years, and after that, payments will be stretched out over 10 to 20 years. Interest rates will be reduced.

Those with debts overdue 90 days or more will have the principal reduced.

Financial institutions will work with the government to introduce an 8.5-trillion-won loan program that will lower interest rates, especially on loans with an annual rate of 7 percent or higher.

Young people that lost money from bad investments will be one focus.

The state-owned Credit Counseling & Recovery Service (CCRS) will run a debt adjustment program for a year starting late September.

Those that are accepted into the program will have their rates reduced 30 to 50 percent depending on their income and assets. If a person borrowed at 10 percent, the rate will be reduced to between 5 and 7 percent.

Another program will extend the maturity on loans for three years at a rate of 3.25 percent.

People eligible for the program are those 34 or younger and with low credit scores.

During Covid-19, many people in their 20s and 30s borrowed money as the central bank lowered the key interest rates to a record low of 0.5 percent. The funds were often used to buy stocks, cryptocurrency and apartments.

"Raising the interest rates is inevitable in suppressing inflation," Yoon said Thursday.

The Bank of Korea raised rates 0.5 percentage points on Wednesday as consumer prices have been rising at an alarming rate. Inflation was 6.0 percent in June, the highest rate in 24 years.

With the increase, interest costs for Koreans have risen 6.8 trillion won.

Yoon noted the self-employed and small businesses forced to borrow during the pandemic are some of the most vulnerable, as are those who bought homes for fear of missing out and invested in stocks due to concerns about their futures.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]