Gov't vows to ease debt burden of vulnerable group

SEOUL, July 3 (Yonhap) -- The financial authorities vowed Wednesday to put their policy focus on easing the debt burden of the socially-vulnerable, as part of a broader effort to induce a soft-landing on the country's mounting household debt.

The outstanding amount of household debt in South Korea reached 961.6 trillion won (US$847.5 billion) as of the end of March, according to the data by the Financial Services Commission (FSC), the top financial regulator.

The household debt has surfaced as a major drag to the economy, crimping private consumption and hurting growth, as its rapid growth since early 2000 led to taking up 89.2 percent of the country's gross domestic product (GDP) for 2011, FSC data showed.

The portion is much higher than the average 74.5 percent of the Organization for Economic Cooperation and Development (OECD), and is the 10th highest out of its 28 member nations.

In its report to the parliamentary hearing on household debts, the FSC said it will make sure its policy measures are best catered to those more financially fragile, mainly referring to the so-called multiple borrowers and house poor.

Multiple borrowers are those who have borrowed money from more than three different lenders. They have a lower credit rating due to their heavy indebtedness, which makes it harder to refinance their debts. Unable to pay them off, many of them become delinquent and often end up filing for personal bankruptcy.

House poor refers to people who bought a house on a mortgage but have been losing their asset values due to a fall in property prices.

In a bid to resolve the debt burden among the vulnerable group, the FSC said it will have banks step up offering heavy debtors the opportunity to shift their loans to the one with a lower interest rate and an extended maturity. For the ailing house poor, it will continue to help them repay their mortgage through a state debt rescheduling program, it added.

The FSC also plans to have the Financial Supervisory Service (FSS), its executive body, keep closer tabs on the lending trends of non-banks -- savings banks, insurers, mutual financing companies and private money lenders -- so to prevent potential defaults, it said.

Meanwhile, the Bank of Korea suggested the government set up a "bad bank", which buys non-performing loans from banks and writes them off as a way to reduce the household debt. Currently the Korea Asset Management Co. handles the purchase of bad loans as a state-run debt clearer, but it deals with defaulted corporate loans as well.

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