Family Debt Increasing 100 Trillion Won a Year, Expected to Be over 500 Trillion Won by Next Year

The debt that individuals owe to banks is increasing by 100 trillion won a year, and is expected to rise above 500 trillion won at the end of next year.

The Korea Institute of Finance (KIF) announced in a report titled `the present state and prospect of family debt` which was submitted to the Ministry of Finance and Economy on the 16th, that banks are increasingly providing loans secured on land, and individual withdrawals by credit and allotments are increasing.

The report projected that individual financial debts, which was 330 trillion won at the end of 2000 and increased to 350 trillion won in June last year, will reach 438 trillion won at the end of 2002, and 508 trillion won 2003. It is expected to jump up to 673 trillion won by the end of 2005, causing insolvent bonds to increase in banks, which can be a serious cause of instability in financial market.

An official of KIF said, "The rate of financial debt to financial assets, which shows the individual`s ability to pay back financial debt, was 2.4 in June of last year, which was lower than that of Japan (3.7), U.S. (4.2), and England (4.3). We are worried about insolvency in families because there are lots of private loans that are out of official statistics, added to the fact that long-term housing financing is not common in Korea."

To prevent the insolvency of family loans, the report suggested △ to restrict excessive competition on credit cards and loans for families secured on the land; △ to improve the system to evaluate the credit of individuals; △ to raise the accumulation of bad debt reserve; △ to prevent unemployment; and △ to prevent the fall in price of assets like stocks and real estates.

Chan-Sun Hong hcs@donga.com