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(EDITORIAL from Korea Times on Nov. 8)

All News 07:08 November 08, 2022

Looming debt crisis
Take bolder action to defuse ticking financial bomb

Concerns are growing over the potential volatility in the financial markets, prompted by the seemingly "excessive" interest rate hikes. Central banks of the United States, the EU and the United Kingdom recently conducted what is called a "giant step," raising the benchmark rate by 75 basis points.

Given this, the Bank of Korea is widely expected to raise its key rate by 50 basis points during a Monetary Policy Board meeting slated for Nov. 24. The move will likely push the mortgage rate to as high as 9 percent, adding to the ongoing difficulties facing individual and corporate borrowers. This means interest rates will triple compared to last year.

It is high time for the financial authorities to take well-conceived and detailed measures to tackle the potential financial problems. In fact, the debt held by households, businesses and the government has increased at a faster rate in Korea than any other country.

Korea's household debt has already reached a record high of 1,860 trillion won ($1,325 billion), becoming a ticking financial bomb. Many domestic enterprises are also suffering from the rapidly growing debt servicing burden amid the loss in value of the Korean won against the U.S. dollar, soaring prices of global resources and worsening consumer sentiment.

An increasing number of businesses are also suffering from the intensifying liquidity crunch. For instance, Heungkuk Life said it would postpone exercising its call option for its dollar-denominated perpetual note worth $500 million, further freezing the bond market.

Worse still, the China branches of Korea's four major banks reported that their delinquent loans, extended to Chinese borrowers, surged to 304.5 billion on Aug. 31, 46 percent from a year ago. The raise was attributed to a growing number of insolvencies of Chinese real estate developers amid the prolonged COVID-19 lockdown. The possible difficulties of major banks will have a far-flung impact upon the entire national economy, in addition to the current liquidity crunch.

On Sunday, the Yoon Suk-yeol administration came up with a package of measures designed to alleviate the financial burden on individuals suffering from high interest rates. Additional measures are necessary to stave off the looming debt crisis.

It is high time for the financial authorities to work out comprehensive measures to cope with potential financial turbulence. While helping financially strapped people by easing the burden on their interest payments, the authorities also need to help businesses muddle through the financial difficulties. They also need to double down on increasing exports, which contracted in October for the first time in 29 months. All these are daunting challenges that require combined efforts from all relevant parties.

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