[사설] Surge in lending rates, household debt risk measures are urgent

The rise in market interest rates is unusual, as banks’ interest rates on household loans have risen significantly. The main factor is the growing fear of inflation due to anticipation of economic improvement along with vaccination, as money has been too loose around the world since the Corona 19 crisis. Domestically, financial authorities are raising real interest rates by drastically reducing banks’ loan limits and preferential interest rates to reduce household debt.

The personal credit loan rates of the four major commercial banks (KB Kookmin, Shinhan, Hana, and Woori Bank) were 2.59 to 3.65% per year as of the 25th of last month. Compared to the 1.99 to 3.51% at the end of July last year, the lower end has increased by 0.6 percentage points (p) in six months. The mortgage interest rate also slightly increased from 2.25% to 2.34%.

The interest rate for short-term financial bonds (less than one year), which is the standard of interest rates on credit loans, is linked to the increase in long-term interest rates, showing a steady rise. In particular, interest rate uncertainty in the US is the biggest variable. US Treasury yields are soaring. Due to concerns over tightening, the 10-year Treasury bond yield surged from 1.09% in early February to 1.54% on the 25th. It has calmed down to 1.43% on the 26th, but it is similar to that before Corona 19.

Despite Fed Chairman Jerome Powell’s negative stance on austerity, there are dominant observations that interest rate volatility will increase. The domestic stock market fluctuated significantly last week due to market uncertainty, and the won-dollar exchange rate rose to 1123.5 won, which jumped 15.7 won on the 26th. A large amount of foreign capital was drained due to the hedging sentiment.

It is highly likely that inflation concerns will fuel market interest rates. The problem is our huge household debt. At the end of last year, the balance of household debt was 173.71 trillion won, an increase of 12.5 trillion won in one year. As the house price soared, the’debt investment’ (investing in stocks by debt) has increased significantly along with the loan of’younger’ (which attracts even the soul). In the meantime, the stock market has been overheated due to the debts of individual investors. However, if the economic improvement is delayed, the possibility of a rapid crash cannot be ruled out. As the interest burden on the debtors increases, households face serious risks. SMEs, whose funding situation is weak, increase their financing rates, which intensifies the difficulties and raises concerns about insolvency.

The financial authorities will come up with measures to manage household debt in the middle of this month. The core content is that the total debt principal and interest repayment ratio (DSR) is applied individually, and money is loaned according to the repayment ability based on principal and interest and income. There is also a plan to repay the principal and interest on a monthly credit loan.

Increased volatility in interest rates is raising household debt and financial market risks more than ever. Along with concerns about inflation, the post-storm of rising interest rates from the US is already visible. There is an urgent need for sophisticated measures to stabilize the financial market while minimizing the impact of the vulnerable class due to debt. There is a great concern that the economic recovery and financial stability will be missed and the suffering of the household will increase.