S. Korean households, firms need to cut rising debt: report

SEOUL, June 14 (Yonhap) -- South Korea should rev up efforts to reduce the increasing debt levels of households and companies to provide for a protracted economic slump, a report said Sunday.

Local households had 858.9 trillion (US$685 billion) in debts as of the end of
2008, or 83.9 of the country's gross domestic product (GDP), according to the
report by the Korea Institute of Finance. The ratio has been on the rise since
2004.
In contrast, the ratio of households' financial assets to debt, a gauge of their
debt repayment ability, came to 50.9 percent, higher than that of the United
States.
Corporate debt, which had risen an annual 13.2 percent since 2005, reached
1,576.9 trillion won at the end of last year, or 153.5 percent of the nation's
GDP.
"During an economic slump, high debt ratios can lead to increased credit risks,"
the report said. "That's why there has been a recent rise in the defaults of bank
loans by household and smaller companies."
According to the nation's financial watchdog, the default rate of bank loans to
small and medium enterprises stood at 2.59 percent in April, up from 2.32 percent
a month earlier. The delinquency rate for households rose to 0.75 percent from
0.73 percent.
The report said efforts should be made to drastically cut household and corporate
debts to prepare for a prolonged economic slump, while the government needs to
provide support to such efforts.
Buffeted by plunging exports and sluggish domestic demand, the South Korean
economy, Asia's fourth-largest, is widely expected to shrink in the 2-percent
range this year, dealing a blow to households and companies.
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