South Korea To Ease Debt-service Burden On Vulnerable Borrowers

South Korean President Yoon Suk-yeol pledged on Thursday to help ease the debt-service burden on low-income earners as a surge in interest rates and living costs put more pressure on heavily indebted households.

The comment came at his weekly meeting on the economy.

South Korea's household debt is among the highest in the world. There are few signs yet that it poses a systemic risk to Asia's fourth-largest economy, but the country has had to offer various relief programmes to borrowers since the COVID-19 pandemic hit the world two years ago.

"While interest-rate increases have been an inevitable action to contain consumer price growth, the burden should not totally be transferred to economically vulnerable sectors of society," Yoon said, adding the government would take steps to help them.

Joining its global peers fighting inflation, the country's central bank on Wednesday raised its policy interest rate by half a percentage point, its biggest single rate hike on record.

Since August last year, the Bank of Korea has raised its policy rate to 2.25% from a record low of 0.50% in order to dampen growing price pressures. Inflation quickened last month to its highest since the late 1990s.

The latest Reuters poll predicted the BOK's policy rate would rise further to 2.75% by the end of this year.

Central bank data shows debt owed by self-employed people classified as "vulnerable borrowers" rose 30.6% in two years to 88.8 trillion won ($67.44 billion) as of the end of March and could rise further.

Analysts welcomed Yoon's commitment to helping vulnerable borrowers.

"There's little new announced today but it's the right thing that the government shows its commitment and readiness so as to give a sense of preparedness," said Park Sang-hyun, economist at HI Investment & Securities.

Recent opinion polls have indicated a rapid decline in Yoon's popularity just two months into his presidency, with the approval rating falling far below the disapproval rating in many surveys.

The Financial Services Commission said after the weekly meeting that it would expand a programme to help low-income borrowers switch adjustable-rate mortgage loans to fixed-rate loans at affordable rates.

Data from the commission showed households had 1,860 trillion won of debt at the end of last year, equivalent to nearly 90% of the gross domestic product. The data also showed adjustable-rate loans accounted for 46% of the debt.

($1 = 1,307.9800 won)