As individuals and households are deeply in debt, there is some worry that the `credit crunch` will largely influence an economic and social structure. They have fallen into debt owing to imprudent using of credit card and a home equity loan. It is because they form a group of delinquent customers as they lose a repayment capacity.
According to a financial industry on January 20, there are over 2600000 individual credit delinquents who cannot execute a normal financial transaction as they cannot pay off their debts of financial institutions such as banks and credit card companies. It corresponds to 11.7% of total Korean economic activities population (22,360,000 people of the end of last year).
The government has concentrated on facilitating a domestic demand such as a construction business and consumption for the economic recovery since the financial crisis. It was successful in improving the business conditions, but there is a mass production of delinquent customers, a hidden investment on real properties and individual over-consumption.
This year, it is estimated that delinquent customers will exceed 3,000,000 people. Also, it is forecasted that an overdue rate of banks and credit card companies will be raised for a while. As the overdue rate is raised, the financial institutions are highly likely to be bankrupted. In particular, as a price of real property is on the decline, a considerable number of home equity lenders lose the repayment capacity. It will be a chain insolvency of the bank.
Some experts are worried about that the credit crunch of financial institutions is likely to rock the while economy connected to the crisis of financial institutions.
The mass production of delinquent customers and increase of the credit card overdue rate is one of critical tasks which the new government must deal with. However, experts haven`t presented a specific solution.
Gamg Hyeong-Mun, vice governor of the Bank of Korea said, Most delinquent customers are in 20`s and 30`s. To relieve the delinquent customers, the individual workout system has been executed and the individual bankruptcy system will be legislated. However, there is `moral hazard` among delinquent customers saying `the government will write off debts`. When such a state is extended, a root of credit society based on `trust` will be shaken.