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Don't demand sacrifices of vulnerable working class
Korea's household debt has surpassed 1,700 trillion won ($1.44 trillion), recording the biggest monthly increase of nearly 10 trillion won in July. Financial authorities have begun to tighten the liquidity supply, and market interest rates are climbing steeply. Banks are reducing credit limits and even blocking loans for rent deposits. May individuals who have nothing to do with housing speculation are struggling under swelling interest burdens. Stabilizing household debt is urgent, but policymakers should not demand the sacrifices of only the working poor and vulnerable.
Koh Seung-beom, the nominee for the Financial Services Commission (FSC) chief, said recently, "The top priority should be on controlling household debt." Koh also stressed that, if confirmed, he would curb new loans using all means available. It is natural for monetary authorities to rein in debt amid global trends toward higher interests. The problem is that it will hit ordinary people the hardest.
Large commercial banks, such as NH Bank and Woori Bank, have suspended loans for rent deposits. The borrowing ceiling for overdrafts mainly used by wage earners and the self-employed is also going down rapidly. To roll over their credit lines, borrowers must pay back money equal to reduced limits. These banks are enjoying handsome profits by taking advantage of the widening interest margins. But they cannot avoid criticism for making money by imposing higher lending rates on individual borrowers.
The government should make efforts to prevent its undue lending controls from putting higher burdens on working people. The self-employed have been suffering from cash crunches amid the prolonged COVID-19 pandemic. Policymakers ought to expand support for these owner-operators' smooth exits and re-employment, instead of emphasizing only debt controls.
The household debt increase is due mainly to runaway housing prices. Due to ill-conceived housing policies, excess liquidity has flown into the property market, leading to debt growth. The government should not pass the buck to the working poor, who are already suffering from surging property prices. While suppressing speculative loan demands, it should carefully manage the money supply to prevent the vulnerable class from falling into financial straits.
