Per Household Debt Owed to Non-Banks Rises to W17 Million
By Park Hyong-ki
Staff Reporter
Low-income households are increasingly being indebted to non-banking firms such as credit card, leasing companies and savings banks.
According to the Bank of Korea Wednesday, the outstanding debt owed to the non-banking sector by households reached 283.3 trillion won at the end of June, up 38 trillion won or 15 percent from a year earlier, the highest debt growth in six years.
The central bank estimates a 17 million won debt per household. In 2002, household debt growth rate stood at 20 percent.
Analysts say this growing debt burden comes as an increasing number of low-income earners and people with poor credit rating have been flocking to secondary financial firms for money after being rejected by commercial banks.
Also, the Korea Institute of Finance noted that given banks have been under tight scrutiny on loan extension by the financial regulator since early last year, most households had no choice but to seek loans from secondary financial firms.
It expects their financial burden to increase as non-banks generally apply higher interest rates to loans than commercial lenders, and repayment provisions are more stringent.
The regulator, in the meantime, has been trying to relax rules governing savings banks so that they can offer better business to low-income households.
The institute said when interest rates on loans rise an average of 1 percentage point, the bottom 20 percent of the income bracket will reduce consumption by 5.01 percent. The top 20 percent will spend 2.44 percent less.
The outstanding balance of household credit loans stood at 660.3 trillion won as of June, up 10.7 percent from the same period a year ago.
Household credit loans from the non-banking sector take up about 42.9 percent of the total, up 1.7 percentage points from a year ago, the highest increase in five years, the central bank said.
This is in stark contrast to 2006 when it was 40.8 percent, down from 41.2 percent in 2005.
phk@koreatimes.co.kr