South Korean banks struggle against massive household debt

Government and banking sector moves to reduce household debt begin to pay off

In June 2011, Seoul announced plans to control the country's heavy household debt situation that could seriously undermine economic growth. Household debt amounts to some US$857.6 billion or one trillion won.

The loan deposit rate for South Korea's banks fell to 95.3% at the end of March as the government takes steps to reduce household debt. The Financial Supervisory Service (FSS), the government regulator, said all 15 local banks (including KB Kookmin Bank, Woori Bank, Shinhan Bank and Hana Bank) met the loan deposit ratio limit of less than 100%.

The FSS said the average number fell 17.1 percentage points from Dec. 2009 and 2.5 percentage points compared to June of last year. It said the low numbers reflect moves by banks to use deposits received and withholding accounts to generate funds and not resorting to bank bonds, certificate of deposits and other wholesale funding sources.

The watchdog said it will strive to monitor and control loan deposit rates in the future. It swill, however, make every effort will be made to ensure funds can reach small and medium enterprises.