S. Korea to ease debt service burden for vulnerable borrowers

  • President Yoon promises to help the most vulnerable borrowers
  • Interest rates are rising much faster than expected
  • South Korean household debt stands at 90% of GDP

SEOUL, July 14 (Reuters) – South Korean President Yoon Suk-yeol pledged on Thursday to help ease the debt service burden of low-income people, soaring interest rates and the cost of life putting increased pressure on heavily indebted households.

The comment came during his weekly economics meeting.

South Korean household debt is among the highest in the world. There are still few signs that this poses a systemic risk to Asia’s fourth-largest economy, but the country has had to offer various relief packages to borrowers since the COVID-19 pandemic hit the world two years ago. .

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“While interest rate increases have been an inevitable action to contain consumer price growth, the burden should not be fully shifted to economically vulnerable sectors of society,” Yoon said, adding that the government would take steps to help them.

Joining its inflation-fighting global peers, the country’s central bank raised its key rate by half a percentage point on Wednesday, its largest single rate hike on record. Read more

Since August last year, the Bank of Korea has raised its key rate to 2.25% from a record low of 0.50% to ease mounting price pressures. Inflation accelerated last month to its highest level since the late 1990s.

The latest Reuters poll predicted that the BOK’s key rate would rise further to 2.75% by the end of this year.

Central bank data shows debt of self-employed workers classified as “vulnerable borrowers” rose 30.6% in two years to 88.8 trillion won ($67.44 billion) at the end of March and could rise further .

Analysts hailed Yoon’s commitment to helping vulnerable borrowers.

“There are few new things announced today, but it’s the right thing for the government to show commitment and preparedness to give a sense of preparedness,” said Park Sang-hyun, an economist at HI Investment & Securities. .

Recent opinion polls have indicated a rapid decline in Yoon’s popularity just two months into his presidency, with approval ratings falling well below disapproval ratings in many surveys.

The Financial Services Commission said after the weekly meeting that it would expand a program to help low-income borrowers switch from adjustable-rate mortgages to fixed-rate loans at affordable rates.

Data from the commission showed that households had 1.86 trillion won in debt at the end of last year, equivalent to almost 90% of gross domestic product. The data also showed that adjustable rate loans accounted for 46% of the debt.

($1 = 1,307.9800 won)

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Reporting by Choonsik Yoo; Editing by Jacqueline Wong, Simon Cameron-Moore and Kim Coghill

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