Finance chief vows tighter control on household debt

Finance Minister Choi Sang-mok speaks at at a meeting of economy-related ministers held at the governmental complex in central Seoul, Thursday. (Yonhap)

Finance Minister Choi Sang-mok vowed Thursday to curb snowballing household debt and thoroughly control the payment crisis involving e-commerce platforms Tmon and WeMakePrice.

The nation's household debt has been on fast growth, sparked by a rise of mortgage loans with the increasing number of housing transactions since around June, Choi said at a meeting of economy-related ministers held at the governmental complex in central Seoul. "The government will work to stably control the rising household debts."

As of August, outstanding household loans extended by banks came to 1,130 trillion won ($840 billion), up 9.3 trillion won from a month earlier, according to data from the Bank of Korea, Wednesday.

The country's household debt has grown for five consecutive months since a 5 trillion won rise in April. The 9.3 trillion won expansion marks a sharp increase from the 5.4 trillion won rise in the previous month. It was the largest jump seen in over three years since July 2021.

Mortgage loans led the growth last month, rising by 8.2 trillion won to 890.6 trillion won. The debt surge is mainly due to the jump in housing transactions in the Seoul area, according to the central bank.

The loan spree even expanded out to nonbanking institutions. Outstanding household debt taken out at the institutions rose by 500 billion won last month, data showed. It was the first time for the figure to increase since October 2022.

Apart from the snowballing household debts, Choi said South Korea’s economy had remained stable with easing price pressures.

The consumer price index, a key gauge of prices for goods and services, rose 2 percent on-year in August, according to Statistics Korea earlier this month. It was the lowest increase in over three years since March 2021, meeting the inflation target of 2 percent set by the Bank of Korea.

“For some products that are still high-priced, including vegetables, the government will put in efforts to stabilize the prices through additional supplies,” he said, pledging to curb prices ahead of the Chuseok holiday. Prices of food products usually rise before the holiday due to high demand.

"The upcoming Chuseok holiday can be the time to spark the consumption of the people and encourage the domestic economy."

Choi further stressed that the government would vitalize investments to boost the economy.

"Though the rebound in exports has led to recovery, domestic consumption is slow to pick up," he said. "(The government) will put efforts into accelerating recovery with a targeted approach, and encourage investments."

Payment delay crisis, involving struggling online marketplaces Tmon and WeMakePrice, will be thoroughly taken care of “until the very end,” Choi pledged.

The two e-commerce platforms under Singapore-based Qoo10 owe a total of 1.3 trillion won to their vendors in terms of overdue settlements. Around 48,000 businesses in and out of the country have been impacted by the liquidity crisis.

The platforms are to work on debt restructuring, having managed to avoid bankruptcy by earning approval to commence the corporate rehabilitation process on Tuesday.

While the government previously announced it would provide 1.6 trillion won in financial support to help vendors hit by the delayed payouts, Choi explained that 343.2 billion won has already been executed. Orders of products and gift cards worth 40.1 billion won have been refunded to customers as well.

Last month, the government pledged to revise related laws to prevent any recurrence. The revision will be submitted to the National Assembly soon, Choi said.

Key measures under consideration include enforcing shorter settlement periods for large-scale retailers and requiring them to separately manage settlement amounts owed to vendors.

By Im Eun-byel(silverstar@heraldcorp.com)