Helping out vulnerable classes first

More Koreans are seeking credit relief than before after failing to meet their loan obligations due to their worsened liquidity. It means that the financial conditions of the underprivileged class are getting worse as they have to struggle to make ends meet.

In data highlighting the ballooning of the hard-up, debt-ridden vulnerable class, applicants for debt rescheduling reached 91,981 in the first half. The number accounts for nearly 70 percent of last year’s annual toll of 138,202, according to the Financial Supervisory Service (FSS).

The applicants for simple debt rescheduling — which grants an exemption on penalty interest for borrowers behind dues for 30 days or shorter and a deferment in the due date — numbered as many as 21,348 in the first half, already nearing last year’s total of 21,930.

The late payment also has become longer. The debt relief that averaged 84.6 months in 2018 stretched to 100.5 months at the end of June, the first time the late repayment extended to more than 100 months.

Delinquency in micro loans has also grown. Micro loans are granted to the people who have not missed their payments during the debt grace period. But the delinquency rate in such loans shot up to 10.9 percent in June from 6.7 percent in 2018. The data suggests that even the borrowers who kept up with their loan dues are falling behind, raising alarm over the possibility of collective souring in debt among vulnerable classes. The financial woes of the low-income class have aggravated from the rise in their living costs despite the stagnation in income amid the country’s economic slowdown.

Nevertheless, public bus fare in Seoul rose 300 won ($0.2) last week for the first time in eight years. Power bills jumped 20.78 percent from last summer. The surge in living cost has hardened the lives of the working class.

The high-interest-rate environment intensifies the pain felt by vulnerable classes struggling to survive. The Bank of Korea has kept the base rate steady since the last raise in January. But mortgage lending rate is rising to 7 percent. Interest burden for households rose to 37 trillion won after the benchmark rate jumped to 3.5 percent in January from 1.25 percent a year ago.

The spike in transportation and utility bills, as well as high borrowing rates, are pushing poorer classes over the cliff. Authorities must come up with more elaborate and effective policy than before to help vulnerable classes to overcome their financial plight.