By Choi Kyong-ae
Korea's household debt is on track to rise further after jumping nearly 4 trillion won ($3.6 billion) in the January-February period; while the "Relief Loans" designed to restructure this debt will not be of much help, experts said Tuesday.
"The 40 trillion won Relief Loans are aimed at helping a small portion of households convert their existing mortgages into fixed, low-rate ones, and also allowing them to pay principal and interest together on a monthly basis," Cho Young-moo, an economist at LG Economic Research Institute, said Tuesday.
He said installment payments of principal and interest will help families lower their overall debt over time, but the conversion program is not likely to reduce the country's entire household debt.
At the end of February, household loans reached an accumulated 522 trillion won after climbing 3.9 trillion won in the first two months, and a combined 66 trillion won in the 2012-2014 period, according to data from the Financial Supervisory Service (FSS).
Escalating worries of possible non-performing loans (NPLs), more than 70 percent of the accumulated household loans were mortgages in the two-month period, Cho said citing FSS data.
"If banks sharply increase loans to low-income earners, it may result in massive NPLs and put the lenders' financial health at risk. In fact, the Relief Loans are not generated for the low-income bracket, but for middle-income earners who are capable of paying back their debt," the LG economist said.
Even if low-income customers manage to convert their current loans into lower-rate Relief Loans, they may have difficulty in paying back the principal and interest every month due to rising living and education costs, economists said.
The finance ministry announced a stimulus package in August to jumpstart domestic spending and home transactions. Low and lower-mid-income earners have since increased their borrowing by offering their houses as collateral due to a lack of disposable income, they said.
To keep home-based borrowing at controllable levels, Lee Phil-sang, a visiting professor of economics at Seoul National University, asked the government to allow mortgage holders in the non-banking sector ― which includes merchant banks, insurers and brokerages ― to be able to apply for Relief Loans.
But the government does not have a plan to include the non-banking lenders due to a lack of collateral and different lending structure.
"The government has come up with short-term measures, not long-term fundamental solutions, in recent years to fix the worsening household debt problems. There should be policies to generate jobs for those in the low-income bracket and increase their disposable income," Lee said.
Korea's household debt is on track to rise further after jumping nearly 4 trillion won ($3.6 billion) in the January-February period; while the "Relief Loans" designed to restructure this debt will not be of much help, experts said Tuesday.
"The 40 trillion won Relief Loans are aimed at helping a small portion of households convert their existing mortgages into fixed, low-rate ones, and also allowing them to pay principal and interest together on a monthly basis," Cho Young-moo, an economist at LG Economic Research Institute, said Tuesday.
He said installment payments of principal and interest will help families lower their overall debt over time, but the conversion program is not likely to reduce the country's entire household debt.
At the end of February, household loans reached an accumulated 522 trillion won after climbing 3.9 trillion won in the first two months, and a combined 66 trillion won in the 2012-2014 period, according to data from the Financial Supervisory Service (FSS).
Escalating worries of possible non-performing loans (NPLs), more than 70 percent of the accumulated household loans were mortgages in the two-month period, Cho said citing FSS data.
"If banks sharply increase loans to low-income earners, it may result in massive NPLs and put the lenders' financial health at risk. In fact, the Relief Loans are not generated for the low-income bracket, but for middle-income earners who are capable of paying back their debt," the LG economist said.
Even if low-income customers manage to convert their current loans into lower-rate Relief Loans, they may have difficulty in paying back the principal and interest every month due to rising living and education costs, economists said.
The finance ministry announced a stimulus package in August to jumpstart domestic spending and home transactions. Low and lower-mid-income earners have since increased their borrowing by offering their houses as collateral due to a lack of disposable income, they said.
To keep home-based borrowing at controllable levels, Lee Phil-sang, a visiting professor of economics at Seoul National University, asked the government to allow mortgage holders in the non-banking sector ― which includes merchant banks, insurers and brokerages ― to be able to apply for Relief Loans.
But the government does not have a plan to include the non-banking lenders due to a lack of collateral and different lending structure.
"The government has come up with short-term measures, not long-term fundamental solutions, in recent years to fix the worsening household debt problems. There should be policies to generate jobs for those in the low-income bracket and increase their disposable income," Lee said.
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