Household Debts at Financial Institutions Grow Faster Than Corporate Obligations

Korea Times (Seoul, Korea), February 22, 2001 | Go to article overview

Household Debts at Financial Institutions Grow Faster Than Corporate Obligations


Households have become growingly indebted to banks and other financial institutions since 1999 amid the soaring borrowings from cash and card services carrying high interest rates.

Individual households' borrowings from financial institutions accounted for about 88 percent of their personal disposable income, the Bank of Korea said in a report on the recent trend of households' debts at financial institutions and their debt servicing capability.

It is not worrisome as the debt service ratio is still lower than those of the United States, Japan, Britain and Taiwan, all of which marked above 100 percent in 1998, a central bank official said.

The report says that outstanding borrowings of households reached 320 trillion won as of the end of September 2000, up 20 trillion won from the end of 1997 when the foreign exchange crisis hit Korea.

The debts of households grew about 12 percent as of the end of September last year from a year earlier, quadruple the growth rate of 3 percent posted by corporate debts to financial institutions.

The growth rate in the corporate sector slowed as a result of forced reduction of debts and liquidation of insolvent companies in the process of corporate restructuring. But the debts of households grew at faster pace due to the expansion of borrowings by households since the latter half of 1998 on expectations that the nation's economy would recover as well as active lending to them by financial institutions in their efforts to avoid high corporate credit risk during the restructuring.

Oh Ho-il, a member of the financial survey team at the policy planning department of the central bank, however, said, ``The growth rate of individual debts is far lower than the 20-60 percent posted in pre-crisis years.''

He also said that households have not borrowed money from financial institutions as real estate prices were relatively stable and the inflationary sentiment was not high, unlike the soaring real estate prices and high inflationary sentiment seen before.

However, households' borrowings through cash advance and credit card services rapidly increased since the latter half of 1998.

Oh said that individual debts mainly came from banks and the use of credit cards last year, compared to borrowings mainly from secondary financial institutions such as cash trust and insurance companies in pre-crisis years. …

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