The Korea Herald


Korea to support vulnerable borrowers

By Korea Herald

Published : April 20, 2017 - 15:19

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South Korea’s financial regulator said Thursday it planned to allow borrowers who cannot repay debts due to a job loss or the death of a relative, to suspend the repayment of the principal for up to three years.

The Financial Services Commission announced a set of measures to help alleviate the debt burdens of vulnerable households after releasing new data on household debt.
Financial Services Commission Vice Chairman Jeong Eun-bo speaks at a meeting in Seoul, Thursday. (FSC) Financial Services Commission Vice Chairman Jeong Eun-bo speaks at a meeting in Seoul, Thursday. (FSC)

The growth of household debt slowed in the first quarter after quickly rising 11.7 percent on-year in 2016. Household loans extended by local financial institutions rose by 15.3 trillion won ($13.4 billion) in the first three months, compared to a 17.9 trillion won gain a year earlier, according to data from the Financial Supervisory Service.

FSC Vice Chairman Jeong Eun-bo held a meeting with FSS officials as well as executives from the local financial industry in Seoul to review household debt management. In it, they discussed how to alleviate the household debt burdens, which could worsen if interest rates rise.

“The FSC will curb the pace of household debt growth to single digit growth this year,” Jeong said at the meeting.

“To help borrowers who find it difficult to make repayments temporarily due to non-voluntary job losses, a shutdown of their business or illnesses, we plan to give them up to three years of grace period in repaying the principal.”

To qualify for a delay of repayments, the borrowers must provide proof of their temporary inability to repay. This can include official documents such as a record of unemployment subsidy payments, a business shutdown application form, a death certificate or confirmation of hospitalization. Also, the value of the property that they took out a mortgage on should not exceed 600 million won.

If a borrower’s debt is amortized with the regular repayment of both principal and interest, he or she would be able to pay only the interest for up to three years. For “bullet” loans -- interest-only products in which the principal is not gradually paid off over the term of the loan -- the maturity of the debt could be delayed for up to three years.

The measure applies to borrowers who took out loans from first-tier banks from the second half of this year, but the regulator plans to later expand it to the secondary financial sector, such as savings banks.

For low income earners whose houses are to be auctioned off due to overdue debts, their financial institutions will be encouraged to delay the auction for a maximum of 1 year, the FSC said.

Meanwhile, the FSC’s Director General Doh Kyu-sang at the financial policy bureau stressed that the latest first-quarter data on household debt cannot be added to the Bank of Korea’s household debt data, which was estimated to be 1,344 trillion won as of the end of 2016.

“The 15.3 trillion won household debt we compiled is about 87 percent of what the BOK collects. So we cannot give you the total amount of household debt,” Doh said at a briefing. The FSC data does not include household loans from pension funds and state-run financial entities such as the National Housing and Urban Fund.

The FSC’s release of data on household debt is to improve communication with the market and to address related policy issues in a timely way, Doh said.

The BOK is scheduled to release first-quarter household data on May 23, according to its website.

By Kim Yoon-mi (