Financial Services Commission’s executive meeting on 25 June about household debt


<Household debt/GDP>


(Source: The Bank of Korea)

     Recently, a new concern over the national economy’s structural issue has been raised, which is a notable problem in household debt. Problems of household debt have been continued since the financial crisis. As you may have noticed from the graph above, the ratio of household debt to GDP was continuously going up, which was at 87% in 2010. If the household debt isn’t efficiently managed, it will become an incubus on our economy. Not surprisingly, the relevant authorities, including the Bank of Korea, have been trying to figure out the appropriate response to household debt problems. 

1. Efforts to respond to the household debt

     The DTI (Debt to Income) regulation was reinforced in March 2011, which is based on the bond of sympathy developed between the government authorities. DTI is the percentage of the annual debt repayments proportionate to consumer’s monthly gross income. FSC took a proactive approach to deal with household debt issues. They provided comprehensive countermeasures for the Micro-credit and a framework for the efficient management on household debt through ‘soft landing’ comprehensive measures. There are 4 measures suggested to manage the household debt.

1) Management of the total liabilities.

2) Improvement of ability to repay the debt through the job creation.

3) Reinforcement of financial soundness.

4) Strengthening Micro-credit.

2. Evaluations

     The rate of increase in household debt has been slowing down, as a result of the efforts by the financial authorities. However, there are still a number of concerning factors to be addressed regarding the management of household debt. The self-employed people, namely entrepreneurs, have relatively high ratio of debt to their income, compared to other regular employees. Also, low-income earners do not have sufficient disposable income for potential expenditure during economic downturn. The other concern is that baby boomers face tight burdens of debt payment after their retirement. Comprehensive and strategic planning on the basis of careful analysis is in urgent need for these problems. FSC should primarily focus on managing specific and microscopic sectors and strengthening household debt’s financial soundness.

     The chairman of FSC, Seok-dong Kim, passed the following request at the executive meeting in June. He urged that the FSC should actively cooperate with government ministries in order to make a good foundation for the Macro-economic condition. This is because it is difficult to respond to the microscopic sectors without help from the government authorities such as the Bank of Korea. He suggested that the T/F should be reorganized to operate flexibly in support of household debt. Also, the macroeconomic conditions, such as management of the total liabilities and job creation, should be backed up to provide a real solution to the fundamental household debt problems.

                                                                                                                         Dohee Im (

Expansion plans of the small-loan finance for the low-income families and the young

In spite of the continuation of global economic growth, the polarization of wealth has become more serious. Due to the Europe’s financial crisis, the real economy is expected to slow down further. Not surprisingly, the finance difficulty for the low-income families will be increased. Thus, it is necessary to reinforce finance policy like Micro-credit. There are some expansion plans of the Micro-finance for the low-income families which are suggested by Financial Services Commission (FSC).

 “Conversion loan which can transfer to lower interest rates will be released”, said the chairman of FSC, Seok-dong Kim, on Thursday May 24th. According to Bankers Association, banks are planning to lower loan interest rates for university students through social contribution fund. Also ‘Start-up assistance foundation’ will be officially launched in the coming weeks. Mr. Kim explained, “Foundation will provide strong and continuous institutional support for younger people in the nation seeking to launch their own startups.”

FSC draws up an extension plan for the traditional market traders, which is double that of last year. The funding limits per person have been revised upwards from five million won to seven million won. When the demand for money is active such as New Year’s Day and Chuseok, it is allowed to increase trade people’s credit line. Besides, the apply standards of Micro-finance have improved. It will be applied flexibly according to their willing to self-support and possibility of success.

Micro-finance Support center will be established cooperating with local government. It provides consulting services that have systematic approach in consideration of the people’s needs such as Micro-Credit, sunshine loan. In addition to consulting service, they endeavor to do customized promotion and finance education for vulnerable members of finance.

FSC is planning to enforce expansion plans on stabilization of living for the young and low-income families. Not only this, FSC is committed to further put efforts on financial policy and banking reforms. To relieve the financial difficulties of a Micro-finance, FSC will be pushing ahead with the Micro-finance expansion strategy and sectional agenda in June 2012.

Dohee Im(