Individual debts up sharply

Individuals owe more money to financial institutions than they did before the 1997 financial crisis, the Bank of Korea (BOK) said Wednesday. The bank also pointed out that chances are good that they will fail to meet their debt obligations unless the economy picks up soon.

According to the BOK, individual debts totaled 320 trillion won as of the end of September last year, up 27 trillion won or 11.8 percent from the end of 1999. The figure marks an increase of 20.1 trillion won from 300.1 trillion won at the end of 1997, shortly after the financial crisis erupted.

But the ratio of debt to disposable income stood at 88.0 percent, down from 100.1 percent at the end of 1997, and also lower than 106.2 percent in the United States and 113.5 percent in Japan, indicating that consumers have the ability to repay their debts. In fact, the default ratio of bank loans came to some 2 percent recently (that of credit cards stood at around 5 percent), up slightly from 1.5 percent (that of credit cards stood at 5.2 percent) at the end of 2000.

The figure sharply declined from 8.8 percent in February 1998.

However, as individuals are increasingly taking out high-interest credit card loans, their debt loads were found to be growing, BOK officials said. Credit-card loans climbed 11.8 trillion won between January and September last year, accounting for 62 percent of the overall increase in individual debts to local financial institutions.

Hong Chan-Sun hcs@donga.com