Koreans' ability to repay debt hits 6-year low

SEOUL, March 17 (Yonhap) -- South Koreans' ability to repay their debts
deteriorated to a record-low in 2008 as their financial assets posted the first
decline in six years amid rising debt, the central bank said Tuesday.

The ratio of financial assets held by individuals to debt, a gauge of their
capacity to redeem debts with assets, came in at 2.09 as of the end of last year,
down from 2.31 the previous year, according to the Bank of Korea (BOK). The 2008
ratio marked the lowest level since 2002 when the BOK began to compile related
data.
"Korean individuals' debt repayment capacity deteriorated last year as their
financial assets fell amid slumping stock prices," Park Seung-hwan, head of the
BOK's flow of funds team, told a press conference.
As of the end of December, individual debt reached 802 trillion won (US$562.4
billion), up 7.9 percent from the previous year. Financial assets owned by
individuals fell 2.1 percent on-year to 1,677.4 trillion won, the first decline
in six years.
Koreans' debt repayment capacity stood at a low level compared with that of the
United States and Japan. The ratio of U.S. individuals came in at 2.86 as of the
end of 2008 and that of Japanese reached 4.37 at the end of September, according
the BOK.
"The ratio of Koreans remains low, but quality of individual debt itself is not
that bad, considering the U.S. has been suffering from the subprime mortgage
rout," Park said.
Local lenders have been wary of extending loans to households and smaller firms
as the slowing economy and the credit crunch are increasing the amount of bad
loans, compromising their financial health. Rising debt and dipping real income,
coupled with falling asset values, are dealing a blow to households' ability to
repay their debts.
Meanwhile, corporate debts jumped 22 percent on-year to an outstanding 1,154.9
trillion won as of the end of 2008 as a weaker won increased the local currency
conversion value of foreign debt, the BOK added.
The Korean currency declined 25.7 percent against the U.S. dollar last year
alone. It has slid another 12.5 percent to the dollar so far this year.
sooyeon@yna.co.kr
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