ID :
204763
Thu, 09/01/2011 - 13:48
Auther :
Shortlink :
https://www.oananews.org//node/204763
The shortlink copeid
Beware of snowballing home debts and soaring inflation
SEOUL, Sept. 1 (Yonhap) -- The size of household debts surged substantially amid sharp price rises in August despite the government's efforts to contain them.
Household loans extended by South Korea's financial institutions are estimated to have grown by more than 5 trillion won (US$4.66 billion) in August despite the regulator's efforts to curb home debt, according to data. Consumer prices also recorded 5.3 percent growth last month, the highest in three years.
Since the lion's share of household debts are mortgage loans carrying floating-rate interests, a sharp rise of bank interest rates would accelerate the insolvency of household loans. It is also worrisome that household loans extended by the secondary banking institutions and credit card companies have risen sharply.
The size of household debts has risen by over 10 percent annually in the past 10 years whereas households' ability to repay debt fell to the lowest level.
Household credit, including loans and credit purchases, reached 876.3 trillion won as of end-June.
Snowballing household debt or households' high indebtedness is feared to crimp consumer spending, thereby compromising the growth of the local economy. The export-oriented economy already faces a potential crisis of dwindling exports due to economic recessions in the United States and Europe.
The shrinkage in consumption and investment will weaken the economy's growth impetus and reduce household income and households' ability to pay debt, which will eventually lead to household bankruptcy and the fall of financial companies.
Hence, it is urgent for the government to reduce household debts.
Financial authorities announced a set of measures to solve the household debt problem on June 29 by tightening banks' loan-to-deposit ratios and mending banks' lending practices, but the measures didn't work.
Despite the measures, local banks' household loan growth is not showing signs of easing. Several major banks have halted the extension of fresh household loans, which has forced the borrowers to seek loans from secondary banking institutions and lending companies that charge higher interest than primary banking institutions.
The government should not be engrossed with reducing the total size of household loans. Some banks are rushing to increase the spreads on interests of mortgage loans and non-mortgage loans with the government's guideline to reduce household loans as a pretext.
Regulating the banks' household loans only increases banks' profits and the burden on borrowers for interest payments. Also it is difficult to solve the problem by increasing bank interest rates, which could deal a fatal blow to many borrowers.
In order to raise households' ability to repay debt, it is most important to increase household income by creating more jobs and stabilizing prices.
Household loans extended by South Korea's financial institutions are estimated to have grown by more than 5 trillion won (US$4.66 billion) in August despite the regulator's efforts to curb home debt, according to data. Consumer prices also recorded 5.3 percent growth last month, the highest in three years.
Since the lion's share of household debts are mortgage loans carrying floating-rate interests, a sharp rise of bank interest rates would accelerate the insolvency of household loans. It is also worrisome that household loans extended by the secondary banking institutions and credit card companies have risen sharply.
The size of household debts has risen by over 10 percent annually in the past 10 years whereas households' ability to repay debt fell to the lowest level.
Household credit, including loans and credit purchases, reached 876.3 trillion won as of end-June.
Snowballing household debt or households' high indebtedness is feared to crimp consumer spending, thereby compromising the growth of the local economy. The export-oriented economy already faces a potential crisis of dwindling exports due to economic recessions in the United States and Europe.
The shrinkage in consumption and investment will weaken the economy's growth impetus and reduce household income and households' ability to pay debt, which will eventually lead to household bankruptcy and the fall of financial companies.
Hence, it is urgent for the government to reduce household debts.
Financial authorities announced a set of measures to solve the household debt problem on June 29 by tightening banks' loan-to-deposit ratios and mending banks' lending practices, but the measures didn't work.
Despite the measures, local banks' household loan growth is not showing signs of easing. Several major banks have halted the extension of fresh household loans, which has forced the borrowers to seek loans from secondary banking institutions and lending companies that charge higher interest than primary banking institutions.
The government should not be engrossed with reducing the total size of household loans. Some banks are rushing to increase the spreads on interests of mortgage loans and non-mortgage loans with the government's guideline to reduce household loans as a pretext.
Regulating the banks' household loans only increases banks' profits and the burden on borrowers for interest payments. Also it is difficult to solve the problem by increasing bank interest rates, which could deal a fatal blow to many borrowers.
In order to raise households' ability to repay debt, it is most important to increase household income by creating more jobs and stabilizing prices.
