Addressing high household debt in Korea


OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

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Addressing High Household Debt in Korea

Rising household debt has become a major policy concern in Korea. By the end of 2012, it had risen to 164% of disposable income, well above the OECD average of 133%. In addition to the economic impact and the risk to the financial sector, it raises social cohesion issues, as households with low income and credit ratings have limited access to financial markets and many are delinquent on their loans. It is essential to induce the soft-landing of household debt through a two-track approach: i) offering credit to households with low income and credit ratings and restructuring their debt, while limiting moral hazard and developing market-based lending; and ii) containing the risk caused by high household debt by strengthening prudential measures for financial institutions and improving mortgage lending by reducing the share of floating-rate and “bullet repayment” loans. This Working Paper relates to the 2014 OECD Economic Survey of Korea (www.oecd.org/eco/surveys/economic-survey-korea.htm)


English

Keywords: individual workouts, household debt, mortgages, Sunshine Loans, delinquent borrowers, Miso Finance, banks, bullet loans, individual bankruptcy, consumer finance companies, National Happiness Fund, New Hope Seed Loans, debt restructuring

JEL:
D14: Microeconomics / Household Behavior and Family Economics / Household Saving; Personal Finance;
D91: Microeconomics / Micro-Based Behavioral Economics / Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making;
J21: Labor and Demographic Economics / Demand and Supply of Labor / Labor Force and Employment, Size, and Structure