July 7, 2022

The South Korean Financial Services Commission (FSC) announced that it will continue to select a “soft landing” for rising household debt and bring debt growth down to pre-pandemic levels by next year.

According to financial authorities, amid worries that growing corporate and household debt and rising interest rates could hurt asset soundness, it aims to “pre-emptively” manage vulnerability risks that face the financial sector.

It aims to make efforts to normalize household debt growth similar to pre-pandemic levels of the 4-5 percent range.

It will proactively manage vulnerability risks in the financial sector, including the crisis-management capacity of non-banking firms, whilst also encouraging a soft landing for loans made to small merchants and self-employed people.

According to the FSC, it cited accelerating household debt growth to be the “largest risk factor” that the country’s economy is currently facing. It also stated unlike other major economies the pace of debt growth has been faster in the country since the onset of the coronavirus pandemic.

As the banks keep record-low interest rates and people’s rush to borrow money to buy homes spurred by skyrocketing home prices, household debt has increased sharply.

According to central bank data, household credit as of end-September came to a record high of 1,844.9 trillion won (US$1,583.9 billion), up 36.7 trillion won from three months earlier.

The government has recently tightened the plug of lending with due concerns about soaring household debt and inflation, by unveiling a series of measures that has been aimed at people, making it tougher to get financial loans.

The Bank of Korea, last month has also raised its key interest rate by a quarter percentage point to 1 percent. This is the second rate hike in three months.

The central bank’s Gov. Lee Ju-yeol to rein in inflation and household debt jitters has hinted at a further rate hike early next year.

The FSC, despite efforts to keep a blanket amount on the overall household debt mentioned that it will continue its efforts to minimize hurdles for ordinary people and those in real need of borrowing.