BOK head warns against bank loan defaults

Korean lenders need to better manage their loans and guard against a rise in loan defaults, the top central banker said Friday.

In a meeting with presidents of commercial banks, Bank of Korea Governor Kim Choong-soo said loan delinquency rates have accelerated this year.

“Such trends are raising concerns,” he stressed, pointing out that inability to pay back loans can pose serious challenges for local lenders and the economy as a whole.

The remarks came as household loan delinquency rates reached 0.89 percent at the end of April, from 0.78 percent in January.

Total outstanding loans to households stood at 452.3 trillion won ($388.2 billion) in the cited month.

Numbers for all won-denominated loans, including money given to companies, reached 1.21 percent in April, up 0.12 percentage point from the previous month.

Heads of banks also acknowledged the rising risks and warned that if the economy does not pick pace soon, there will be greater risk of people defaulting on their debts.

Seoul predicted the economy will grow 3.7 percent this year, although the Bank of Korea said 3.5 percent is more likely in the face of persistent eurozone woes and sluggish growth in the United States and China that can affect trade. In 2011, South Korea’s economy moved up 3.6 percent.

Related to Kim’s warnings, foreign investment banks in Seoul said there is a need for the country to lower its household debt numbers, even if such the move entails hardship for some people.

They pointed out that the country had not taken steps following the 2008 global financial crisis to tackle this situation in an effective manner.

IBs said because the eurozone crisis may last 4-5 years, during which time global trade may be affected, there is a pressing need to systematically tackle the debt problem. High indebtedness can limit domestic consumption, which is important if exports are affected by a drop in demand from abroad. (Yonhap News)