Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Finance minister warns of tougher lending rules
Finance Minister Hong Nam-ki, second from left, and leaders of the central bank and financial watchdogs pose during a meeting to discuss the nation's macroeconomic policies, at the headquarters of the Korea Federation of Banks in Seoul, Thursday. From left are Financial Services Commission Chairman Koh Seung-beom, Hong, Bank of Korea Governor Lee Ju-yeol and Financial Supervisory Service Governor Jeong Eun-bo. Courtesy of Bank of Korea
By Lee Min-hyung
Industrial output, retail sales and facility investment suffer triple drops in August
By Lee Min-hyung
Finance Minister Hong Nam-ki warned Thursday that tougher lending rules would come into force in October, as part of preemptive risk management measures against soaring household debt.
“The steep growth in household debt poses risks to the economy, so we are going to introduce a package of stricter measures to address the issue,” Hong said during a meeting with the leaders of the Bank of Korea (BOK) and financial regulators.
The financial authorities are in the final stages of a review before revealing the measures, the aim of which is to restrict the pace of the growth of household debt, according to the minister.
Participants in the meeting included BOK Governor Lee Ju-yeol, Financial Services Commission Chairman (FSC) Koh Seung-beom and Financial Supervisory Service (FSS) Governor Jeong Eun-bo. This is the first time in seven months that the leaders of the financial authorities have held a face-to-face meeting.
Korean borrowers will face a tougher time in taking out loans from banks after what industry watchers consider to be the “toughest-ever” lending restrictions are put in place here.
FSC chief Koh has voiced repeated warnings against snowballing household debt since taking office in August. The bureaucrat, who has maintained a hawkish stance over debt-related issues since his inauguration, remains unwavering in his position, underscoring the need to introduce a tighter set of lending rules as he called household debt the “biggest risk” threatening the local economy.
Hong went on to say that the authorities cannot rule out the possibility of the economy being exposed to external risk factors related to China's Evergrande crisis and the U.S. Fed's upcoming tapering.
“Interest rates here and abroad are on the rise on concerns over the beginning of tapering, and volatility on the stock and foreign exchange markets here looks to be increasing,” Hong said. The government cannot leave out the likelihood that such external risks will weigh down on the economy here, he added.
After the central bank raised its benchmark rate in August, commercial banks are moving to rapidly raise the interest rates on loans. According to data from the BOK, their average interest rate on household loans came in at 3.1 percent last month, up by 0.12 percentage points from August. This was the highest since July 2019 when the figure reached 3.12 percent. The rate has been increased for three consecutive months so far.
Aside from the interest rate-related issues, experts argue that the government and the BOK should make efforts to extend the Korea-U.S. currency swap agreement which expires at the end of 2021.
“The extension of the deal is currently very important amid the surging won-dollar exchange rate,” Sejong University economist Kim Dae-jong said. If both sides agree to do so, this will help stabilize the foreign exchange market here, which will minimize any possible economic shocks from the Korean won's depreciation, according to Kim.
Even if the rate hike by the BOK is reflected on the economic recovery momentum here, the economy is still grappling with the aftermath of the fourth wave of COVID-19, according to data released Thursday by Statistics Korea.
Under monthly trends, Korea's industrial output, retail sales and facility investment all fell in August for the first time in three months. Industrial output dropped by 0.2 percent from the previous month; retail sales fell 0.8 percent; and facility investment declined 5.1 percent.
Statistics Korea attributed the drops to the base effect and a slowdown in the economic recovery due to the resurgence of the pandemic.
Given that the self-employed and small business owners are still teetering on the verge of collapse amid tough social distancing regulations, and pandemic-induced weak consumption remains, the government has pledged to expand support to these groups.
“We will take appropriate steps for the self-employed, socially vulnerable groups and marginal firms suffering from the fallout of the COVID-19 resurgence, helping them overcome the crisis with policy-wise support,” Hong said. “Above all, from the end of October, the government will offer compensation to those who suffered losses due to social distancing rules.”