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Missed payments on household loans could rise by 0.3∼0.6%p without Covid-19 support measures: BOK Updated: 2021-06-22 17:27:10 KST

The South Korean government's Covid-19 support measures appear to have helped households pay their debts on time.
According to the Bank of Korea on Tuesday, the rate of missed payments on household loans which were issued in the first quarter of 2020 was point-six percent.
The figure is well below the previous figure of one percent for missed payments in the first year for household loans issued from 2013 to 2019.
The central bank attributed the fewer missed payments to a series of Covid-19 support measures including relief funds.
According to its own analysis, the default rate is expected to have been point-three to point-six percentage points higher if there had been no government support.
Based on this analysis, the Bank of Korea has advised financial institutions to expect a growing number of bad loans, since more households are likely to miss their payments when the support measures end.
The central bank also expressed concern that households in Korea could face higher debts when interest rates go up.

"When interest rates in advanced economies rise, Korea and emerging countries face pressure on capital outflows. This results in higher interest rates in the domestic market. When the household loan interest rate goes up by one percentage point, households in Korea will pay about 12 trillion won or 10 billion U.S. dollars more as interest each year."

However, when asked whether financially vulnerable households would end up missing their payments when interest rates go up, the Bank of Korea said that as long as household income increases along with the expected economic growth rate, default rates from this group won't be significant.
Vulnerable households are those with multiple debts who either have an income in the bottom 30 percent income bracket or households with low credit scores.
The sector also covers households who pay 70 percent or more of their annual income to service their debts.
Seo Eunkyung, Arirang News.
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