Assemblywoman Yang Kyung-sook "Concerns Over Increased Household Debt Risks Due to Interest Rate Hikes"

"Support Measures Needed at the Bank of Korea Level for Victimized and Vulnerable Groups"

Yang Kyung-sook, Member of the Democratic Party of Korea

[Asia Economy Reporter Kim Eun-byeol] Yang Kyung-sook, a member of the Democratic Party of Korea (National Assembly Planning and Finance Committee), expressed concerns about the possibility of the Bank of Korea raising the base interest rate this year. The reason is that if the interest rate rises, loan interest rates will increase, which could lead to greater household interest burdens and credit risks.

According to data analyzed by Rep. Yang on the 16th, among three OECD countries, the average household debt ratio is 64.3%, whereas South Korea's ratio stood at 106.1% at the end of last year, ranking sixth highest among 37 countries. The increase in household debt has been shown to reduce disposable income, thereby weakening consumption capacity and growth potential.

At the Planning and Finance Committee plenary session, Rep. Yang said, "If the base interest rate is raised, it will lead to an increase in loan interest rates, which in turn results in a heavier interest repayment burden on households," adding, "policy support should also be considered to prevent the financial soundness of vulnerable groups from collapsing, such as expanding the financial intermediary support loan system."

In response, Lee Ju-yeol, Governor of the Bank of Korea, said, "Although the economy is recovering, there are vulnerable groups such as self-employed individuals, small business owners, and those with unstable employment who do not feel the warmth of the economic recovery," and added, "We fully understand the difficulties faced by these vulnerable groups and will not neglect support for them, including expanding financial assistance."

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated, "During the COVID-19 situation, vulnerable groups have been severely impacted, so various budgetary support projects for these groups are being prioritized," and said, "if interest rates rise, vulnerable groups will again be hit hard, so we will increase policy-based low-interest financing and prepare measures to allow switching to fixed interest rates in response to the rate hike."

He added, "For vulnerable debtors, we will devise measures to mitigate their impact by mobilizing all possible government means, including supporting debt restructuring."