Lenders move to help ailing households, smaller firms

Korea's major financial firms vowed Friday to step up efforts to ease the financial burdens of debt-ridden households and smaller companies hit by the global downturn, joining the government's latest measures to ensure financial stability.

Six financial holding companies, including Woori Finance Holdings Co., unveiled a spate of initiatives aimed to help borrowers, especially under the low-income group, repay their debts and lend support to smaller firms or the self-employed whose businesses have been weighed down by insufficient cash flows.

Woori Finance, the country's biggest lender by assets, will introduce a "trust and lease back" program from October, which allows troubled mortgage borrowers to entrust their properties to the bank and pay a rental instead of repaying the principal, until the debtor's financial status gets better.

"It is the first time in the local banking sector to implement such a product. As long as borrowers manage to pay the rent, they can keep their property in their hands, not be forced to auction it off," a Woori Finance official said.

No. 2 player KB Financial Group Inc. and Shinhan Financial Group Co. will encourage mortgage applicants to choose fixed-rated loans in place of those based on a floating rate so to reduce the fluctuation in interest payments.

As for potential delinquents, they will continue to help them turn around with a pre-workout program launched by the local financial regulator in June, which offers troubled borrowers an option to defer the repayment period.

The lenders' move came on the heels of a growing call for solutions to alleviate concern in the financial market. Ballooning household debts stemming from a sagging property sector and a slowdown in exports have eroded domestic consumption, hurting the overall economy, Asia's fourth-largest.

Household debts, including credit loans reached a record 922 trillion won (US$824 billion) as of end-June. Outbound shipments have dropped for a second consecutive month since July, amid the government's downward growth forecast for this year.

Late last month, Kim Seok-dong, the head of the Financial Services Commission, met with chiefs of major financial firms to discuss how to engineer a soft landing for household debt.

The lenders said they are also planning to increase lending to small and medium enterprises (SMEs). They have set aside more than 5 trillion won to offer loans to SMEs ahead of the Chuseok holiday next week, Korea's Thanksgiving Day.

The financial firms will also extend more loans at a lower rate to the low-income group and self-employed with heavy debts and a repeated delinquency.

Woori Finance said it will soon introduce a term deposit with a 7 percent yield before the end of this month in a bid to help the low-credit borrowers. South Korea's benchmark 7-day repo rate currently stands at 3 percent.(Yonhap)