[ED] Reduce household debt – Korea Times
[ED] Curb household debt
Korean household debt topped 1.7 trillion won ($ 1.44 billion), recording the largest monthly increase of nearly 10,000 billion won in July. The financial authorities have started to tighten the supply of liquidity and market interest rates are skyrocketing. Banks are lowering credit limits and even blocking loans for rent deposits. Let individuals who have nothing to do with real estate speculation struggle under increasing interest charges. Stabilizing household debt is urgent, but policymakers should not demand the sacrifices of poor and vulnerable workers alone.
Koh Seung-beom, the candidate for the head of the Financial Services Commission (FSC), recently said: “The top priority should be to control household debt.” Koh also stressed that, if confirmed, he would limit new loans using all available means. It is natural for monetary authorities to curb debt amid global trends towards higher interest rates. The problem is, it will hit ordinary people the hardest.
Major commercial banks, such as NH Bank and Woori Bank, have suspended lending for rent deposits. The overdraft borrowing limit mainly used by employees and the self-employed is also falling rapidly. To renew their lines of credit, borrowers must repay an amount equal to reduced limits. These banks are making good profits by taking advantage of the widening of interest margins. But they can’t avoid criticism for making money by imposing higher lending rates on individual borrowers.
The government should strive to prevent its unwarranted loan controls from increasing burdens on workers. Self-employed workers suffer from cash shortages amid the protracted COVID-19 pandemic. Policymakers should expand support for the smooth exits and re-employment of these owner-operators, rather than just focusing on debt control.
The increase in household debt is mainly due to the boom in house prices. Due to poorly designed housing policies, excess liquidity poured into the real estate market, causing debt to grow. The government should not pass the buck to the working poor, who are already suffering from soaring house prices. While suppressing requests for speculative loans, it should carefully manage the money supply to prevent the vulnerable class from falling into financial difficulty.