High interest rates and high prices, a speedy battle for financial support for the vulnerable
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The average interest rate on household loans in the banking sector rose to the 4.2% range last month due to the base rate hike and market interest rate rise, the highest level in eight years and nine months.
According to the weighted average interest rate statistics of financial institutions announced recently by the Bank of Korea, the interest rate on household loans (weighted average, based on new transactions) of deposit banks in June was 4.23% per annum. It is the highest in eight years and nine months since September 2013 (4.26%). It increased by 0.09 percentage points from May.
Among household loans, the interest rate on home mortgage loans rose 0.14 percentage points to record 4.04% a year, entering the 4% range for the first time in 9 years and 4 months since February 2013 (4.06%). The interest rate on credit loans rose 0.22 percentage points to 6.00% per year, the first time in 8 years and 10 months since August 2013 (6.13%).
Domestic consumption is also slowly freezing under the influence of continuous interest rate hikes and weakening consumer sentiment due to high inflation. According to the industrial activity trend of the National Statistical Office, the retail sales index (seasonally adjusted) in June was 118.3 (2015 = 100), down 0.9% from the previous month. The decrease in consumption for the fourth month following March (-0.7%), April (-0.3%), and May (-0.2%) is the first in 24 years and 5 months since October 1997 to January 1998.
As high inflation and the effects of global monetary tightening are reflected in the domestic economy, the government is speeding up measures to stabilize the livelihood of the vulnerable, including small business owners.
The Financial Services Commission recently announced that it would promptly promote a livelihood stabilization program of ‘125 trillion won + α’ to support households, the working class, and the underprivileged and, if necessary, reinforce it through additional measures.
To support small business owners and the self-employed to overcome COVID-19, financial support for business stabilization (41.2 trillion won), interest burden reduction by converting high-interest loans to low interest rates (8.5 trillion won), debt adjustment after purchasing bad debts through the New Start Fund Support (30 trillion won) will be promoted.
In order to reduce the financial burden related to housing, the safe conversion loan, which converts a variable interest rate to a fixed rate, has been increased from 40 trillion won to 45 trillion won, and the limit for low-interest loans has been increased from 200 million won to 400 million won.
The ‘replacement loan for small business owners’, which converts high-interest non-bank loans of more than 7% per annum into low-interest policy funds, has been in effect since the 29th. The total size is 200 billion won, and it is a loan method without a separate guarantee to support low-credit small business owners (NCB 744 points or less) who urgently need repayment due to the burden of debt repayment.
On the 29th, the first day of application for a loan for small business, interest was high, as the operation of the confirmation system for loan application was temporarily suspended as more and more applicants flocked to it. According to the Ministry of SMEs and Startups, the operation of the application system for confirmation of loan support for small businesses was suspended around 10:40 am on the same day, and then resumed around 3:20 pm.
The Bank of Korea recently decided to invest 120 billion won in the Korea Housing Finance Corporation (Jingeumgong) to support the smooth supply of ‘secure conversion loans’. The actual investment will be carried out in August considering the preparation period for the actual operation.
The Relief Conversion Loan is a policy financial product that allows borrowers to change to a fixed interest rate after receiving a mortgage loan at a variable interest rate from a commercial bank. According to the BOK, the proportion of variable interest rates in mortgage loans is expected to decrease if the safe conversion loan of the planned size is smoothly supplied by next year. By Kim Hyung-yeop, staff reporter khy@yeongnam.com
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