Stop policy mismatch to tame household debts

We hope the government will be able to control the surging household debt with well-coordinated policies before it is too late.

In a stunning development, mortgage rates of insurance companies, the second-tier financial institutions, fell lower than those of commercial banks. The lowest mortgage rate of 3.65 percent at NH Bank, one of the five largest banks, is even higher than that of seven major life insurance companies (3.59 percent) and property insurance companies (3.19 percent).

Given their relatively bigger financial burden, insurance companies’ lending rate should be higher than that of commercial banks. But what’s happening is the opposite. While major insurance firms lowered their mortgage rates in tune with the falling interest rates of treasury bonds, which serves as the base for the benchmark rate, commercial banks lifted their rates 22 times over the past two months due to pressures from the financial authorities.

Appearaing at KBS on Sunday, however, Lee Bok-hyun, head of the Financial Supervisory Service (FSS), blamed commercial banks for “lifting interest rates only to make profit” without taking responsibility for the watchdog’s failure to oversee the mounting household debts. Lee went on to claim that commercial banks’ rate hikes for housing loans are not what the FSS hoped for.

It is rare for the chief of a financial watchdog to openly express an intention to intervene in determining the interest rates of commercial banks. But more strangely, he attributed the unprecedented loan rate discrepancy to banks.

Commercial banks had to raise their mortgage rates even when the market’s interest rates fell. That’s primarily due to the tangible or intangible pressure from the financial authorities. In an internal meeting in July, the FSS chief pressured commercial banks to refrain from expanding their loans to prevent the alarming household debt from getting worse. Two weeks ago, he even threatened to carry out a joint investigation of commercial banks to check their procedure of lending loans to households.

Nevertheless, the amount of five major banks’ household loans to be repaid showed the biggest monthly increase since 2016, up 6.8 trillion won ($5.13 billion) as of Aug. 22. Household loans are increasing at a record rate. The sum of national debt and household debts exceeded 3,000 trillion won for the first time in the second quarter of this year.

The primary responsibility for the mess largely falls on financial authorities and other economy-related ministries. The government incited a number of youths without home to hurriedly take housing loans after the government announced it would delay the implementation of toughened mortgage regulations by two months until September.

We hope the government will be able to control the surging household debt with well-coordinated policies before it is too late.