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‘Growing debt at marginal households poses threat to economy’
By Korea HeraldPublished : Sept. 27, 2016 - 17:11
The rapid growth in liabilities of so-called “marginal households” is posing threats to the South Korean economy and the government should come up with more measures to support them, said an opposition lawmaker on Tuesday.
In a report for a parliamentary audit of the Ministry of Strategy and Finance, Lee Un-joo, a lawmaker of the main opposition The Minjoo Party of Korea, highlighted the seriousness of the rising number of heavily indebted households and possibly defaulting households, urging the government to establish measures for them.
A marginal household refers to highly leveraged families that have more liabilities than assets and spend over 40 percent of their disposable income on paying loan principal and interest.
There are 1.34 million families considered marginal households, as of March 2015, up 220,000 households from a year earlier, the lawmaker said, based on data from the Bank of Korea, Statistics Korea and the Financial Supervisory Service.
The total financial liabilities of the households stood at 234.5 trillion won ($213.5 billion), the data showed.
Another 1.11 million households were considered to carry risks of default on about 162 trillion won.
About 540,000 households were categorized as both marginal and possibly defaulting families, the data showed.
“The number of overlapping households included mostly self-employed breadwinners in their 40s,” Lee said. “If market rates start to rise, or if their income growth remains slow due to the prolonged downturn, the possibility of those households defaulting on their debt is very high.”
“The government should come up with selective measures to help adjust the debt structure of the working class,” she added.
On Monday, the Financial Services Commission decided to ease the burden on low income households struggling to pay back loans by writing off up to 90 percent of the loan principal, raising the limit from the current 30 to 60 percent.
FSC Chairman Yim Jong-yong acknowledged there has not been sufficient support for those households so far. He pledged to improve the debt adjustment system by providing more support to those who are financially incapable of repaying debt while expanding incentives for those who have been paying back their borrowing faithfully.
By Song Su-hyun song@heraldcorp.com)
In a report for a parliamentary audit of the Ministry of Strategy and Finance, Lee Un-joo, a lawmaker of the main opposition The Minjoo Party of Korea, highlighted the seriousness of the rising number of heavily indebted households and possibly defaulting households, urging the government to establish measures for them.
A marginal household refers to highly leveraged families that have more liabilities than assets and spend over 40 percent of their disposable income on paying loan principal and interest.
There are 1.34 million families considered marginal households, as of March 2015, up 220,000 households from a year earlier, the lawmaker said, based on data from the Bank of Korea, Statistics Korea and the Financial Supervisory Service.
The total financial liabilities of the households stood at 234.5 trillion won ($213.5 billion), the data showed.
Another 1.11 million households were considered to carry risks of default on about 162 trillion won.
About 540,000 households were categorized as both marginal and possibly defaulting families, the data showed.
“The number of overlapping households included mostly self-employed breadwinners in their 40s,” Lee said. “If market rates start to rise, or if their income growth remains slow due to the prolonged downturn, the possibility of those households defaulting on their debt is very high.”
“The government should come up with selective measures to help adjust the debt structure of the working class,” she added.
On Monday, the Financial Services Commission decided to ease the burden on low income households struggling to pay back loans by writing off up to 90 percent of the loan principal, raising the limit from the current 30 to 60 percent.
FSC Chairman Yim Jong-yong acknowledged there has not been sufficient support for those households so far. He pledged to improve the debt adjustment system by providing more support to those who are financially incapable of repaying debt while expanding incentives for those who have been paying back their borrowing faithfully.
By Song Su-hyun song@heraldcorp.com)
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Articles by Korea Herald
