Household debt interest payments exceed 50 trillion won this year

Interest payments on household debt exceeded the 50 trillion won ($43 billion) mark for the first time this year as people took out more loans and coped with higher borrowing rates, financial sources said Sunday.

Sources said that interest payments on debt reached around 5 percent of the gross national income that will inevitably exert negative influence on consumer spending, production and economic growth.

Data from local financial institutions and the Bank of Korea showed household interest payments reaching 56.2 trillion won from January through November.

They said the rise can be attributed to a surge in loans that totaled 840.9 trillion won as of late September, from 797.4 trillion won tallied at the end of 2010.

By financial institution, outstanding loans by banks stood at 449.6 trillion won this year, up 18 trillion won from the end of last year, with loans given out by the country’s agricultural cooperative and insurance companies gaining 7.3 trillion won and 4 trillion won, respectively.

In addition to more money borrowed, personal loan interest rates that reached an average of 5.35 percent as of late 2010 rose to 5.86 percent in September.

The increase translates into more interest payments that will strain household finances, especially since earnings have not grown correspondingly.

“A rise in interest payments will directly impact consumption, which is bad news for the domestic economy,” said Chung Young-sik, the chief researcher of the Samsung Economic Research Institute. He added that this is particularly worrisome because the South Korean economy is already feeling the pinch of the global economic slowdown. 

(Yonhap News)