ED Worsening debt problem

The country’s household debt hit an all-time high of 1,344 trillion won in December. The figure represented an increase of 141 trillion won from the previous year. In the October to December quarter alone, household debt jumped by a record 47 trillion won despite the government’s measures to rein it in.

The ratio of household debt to disposable income has surpassed 160 percent, with the amount of debt per household averaging 26 million won.

The central Bank of Korea said the rise in household debt was fueled by an expansion of loans from non-bank financial institutions such as insurance companies. That’s because the top financial regulator tightened lending rules for commercial banks. The amount of money owed to non-bank financial institutions reached 291 trillion won in December, up 17 percent from a year earlier.

Concern about the ``household debt bomb’’ is growing rapidly. Household debt, which includes loans from banks and other financial institutions plus credit card spending, has been surging in recent years, boosted by the government’s measures to prop up the real estate sector, while income growth has been stagnating. In fact, household debt expanded by 381 trillion won during the nearly four years of the incumbent administration, compared to the 298 trillion won increased during the five years of the previous Lee Myung-bak government.

What matters most are marginal households whose debt service-to-disposable income ratio is over 40 percent. The number of such households vulnerable to outside factors exceeded 1.81 million last year, up 14.7 percent from a year ago. The problem is that should the debt bomb burst, its repercussion will be far-reaching, dealing a fatal blow to financial companies.

Last year the government unveiled a string of measures aimed at putting the brakes on the swelling household debt, but to no avail. Given that the debt problem has already reached a dangerous level, it’s time for all of us to roll up our sleeves to contain this problem.

The most important thing is to put a damper on the soaring trend in loans by non-bank financial institutions. More fundamentally, the government should map out more comprehensive measures, including policies on welfare and job creation.