[Reporter’s Notebook] Inflation Warning Lights Flashing... Debtors Left Unprotected

Pressure for Rate Hikes Mounts Amid U.S.-Driven Inflation Warnings
Household Debt Surge Remains an Ongoing Crisis

[Asia Economy Reporter Park Sun-mi] #Household loan record surge #Stock and coin investment with overdraft accounts #Yeongkkeul (borrowing to the limit) to buy a home #Small business loans to endure.

1,025.7 trillion KRW. This is the outstanding balance of household loans from banks as of the end of April. The household debt increased by more than 16 trillion KRW in just one month. This is the largest increase since statistics began in 2004.

As can be seen from the snowballing household loan figures, loans are inevitably part of the current state of South Korea’s capital flow. Under the low-interest rate trend, money flows not into the real economy but into speculative markets, completely breaking the saving habits of the older generation who used to repay loans first when they had money. Rather, a social atmosphere has formed where if you do not borrow as much as possible to invest in something, you risk becoming a ‘lightning poor’ (suddenly impoverished).

The concern is that household loans, which are hitting record highs every month, are appearing amid fears of rapid inflation and increasing pressure for benchmark interest rate hikes. Although the government and financial authorities hastily created household debt management plans and loan regulations, these will only take effect from July. With the announced regulations, even those who do not immediately need money are showing a ‘last-ride Yeongkkeul’ mentality, increasing the likelihood that loans will actually rise.

About 10 months ahead of the next presidential election, a relaxation of regulations for young people and the homeless is also forming mainly in the political sphere. This increases the strong possibility that young people will escape through regulatory ‘gaps.’ Especially since there is a strong trend among young people and the homeless to accumulate assets through stocks and cryptocurrencies, easing regulations for them could have the adverse effect of increasing debt burdens amid inflation.

Some worry that the repeatedly extended COVID-19 loan maturity extensions and repayment deferrals may help small business owners and SMEs facing immediate difficulties, but ultimately increase their debt burdens and create anxiety about interest rate hikes.

International credit rating agency Moody’s has warned that South Korea’s household debt absolute size and growth rate are at high levels. The political and financial authorities must deeply reflect on their failure to rescue the lower-income class from the debt pile before such warnings were issued.