W25 tril. debt to be written off for 2 mil. people

About 2.14 million debtors will be relieved from their obligations to pay back the money they owe as financial regulators and lenders have agreed to dispose of their overdue liabilities.

The finance authorities said about 25 trillion won ($22.3 billion) in overdue debt will be disposed of by the end of this month.

“Financial regulators and lending institutions came to an agreement to dispose of the uncollectible debt by the end of August,” Financial Services Commission Chairman Choi Jong-ku said Monday.

The measure comes after Korea’s household debt ballooned to over 1,400 trillion won last month. It is also part of President Moon Jae-in’s campaign pledge to help people ease their debt payment burden by writing off their long-overdue liabilities.

Choi noted that the debt growth rate is at an alarming level.

The rise was attributable to increased mortgages.

Buoyed by mortgages and other loans to households, banks have posted record-high earnings in the first half of this year. The aggregate net profit of the country’s four largest banks reached 4.34 trillion won.

“I’m not saying earning a lot is bad. And the problem of household debt is not only the fault of banks,” Choi said recently. “However, it is questionable whether their business practices are desirable, even though expanding loans to households is profitable.”

Choi said the FSC may opt to penalize banks by lowering their Bank of International Settlements (BIS) capital adequacy ratios if they extend too many loans to households.

If a bank is penalized by the FSC, its BIS capital ratio would go down and it would face additional regulations.

This is part of the incumbent administration’s efforts to boost household income and create more jobs.

These will be the two pillars of government policy to promote economic growth.

Also, it will support small- and medium-sized enterprises to rise as major economic players, and promote domestic consumption’s contribution to growth.