Korea to allow vulnerable borrowers to delay debt repayments
[THE INVESTOR] Korea’s financial regulator said on April 20 it will allow vulnerable borrowers, who cannot make financial debt repayments temporarily due to a job loss or death of an heir, to delay the payments of the principal for up to three years, starting from the second half of this year.
The Financial Services Commission announced a set of measures to help alleviate the debt payment burden of vulnerable households, after releasing latest data on the nation’s household debt.
The growth of household debt slowed in the first quarter after quickly rising 11.7 percent on-year in 2016. Household loans extended by local financial institutions rose by 15.3 trillion won (US $13.4 billion) in the first three months, compared to a 17.9 trillion won gain a year earlier, according to data from the Financial Supervisory Service.
FSC Vice Chairman Jeong Eun-bo held a meeting with FSS officials as well as executives from the local financial industry in Seoul to check their management of household debt and discuss how to alleviate the debt payment burden of households who could face a heavier burden with interest rate hikes in the future.
“The FSC will curb the pace of household debt growth to single digit growth this year,” Jeong said at the meeting.
“To help borrowers who find it difficult to make repayments temporarily due to non-voluntary job losses, a shutdown of their business or illnesses, we plan to give them up to three years of grace period in repaying their principals.”
To qualify for a delay of repayments, the borrowers must prove their temporary inability to repay, by presenting official documents such as a record of receiving unemployment subsidies, a business shutdown application form, a death certificate or confirmation of hospitalization. Also, the price of the house property that they took a mortgage on should be lower than 600 million won.
If a borrower’s debt is amortized with regular repayment of both principal and interests, he or she could pay only interest for up to three years. If it is a bullet payment, the maturity of the debt could be delayed for up to three years.
The measure applies to borrowers who took loans from primary banks from the second half of this year but the regulator plans to expand it to the secondary financial sector later.
For low income earners whose houses are to be auctioned off due to overdue debts, their financial institutions will be encouraged to delay the auction for a maximum of 1 year, the FSC said.
Meanwhile, the FSC’s Director General Doh Kyu-sang at the financial policy bureau stressed that the latest first-quarter data on household debt cannot be added to the Bank of Korea’s household debt data, which was estimated to be 1,344 trillion won as of the end of 2016.
“The 15.3 trillion won household debt we compiled is about 87 percent of what the BOK collects. So we cannot give you the total amount of household debt,” Doh said at a briefing. The FSC data does not include household loans from pension funds and state-run financial entities such as the National Housing and Urban Fund.
The FSC’s release of data on household debt is to improve communication with the market and to address related policy issues in a timely way, Doh said.
The BOK is scheduled to release first-quarter household data on May 23, according to its website.
By Kim Yoon-mi/The Korea Herald (firstname.lastname@example.org)