It has been more than two years since the government announced a package of policy measures to curb rapid growth of household debt in June 2011. Now it is time for us to review how much improvement was made in the household debt issue so far and where we have to make extra efforts for further improvement.
For the last two years, a series of governments’ policy significantly reduce the risk that the household debt problem would likely weigh down on the whole financial system. The pace of household debt growth became moderate. The quarterly growth rate of household debt fell from 9.6% in the second quarter of 2011 to 5.5% in the second quarter of 2013. The share of fixed rate loans out of the total household lending increased from 5.1% at the end of 2010 to 22.7% at the end of August 2013, which means banks now have a sounder structure of household loans.
The results of stress tests conducted by the KIF and Moody’s also suggest that the household debt problem would not pose a serious threat to the overall healthiness of the financial sector even if economic environment worsened. The KIF estimates that banks could maintain their BIS ratios at 12.3~12.8% if house prices and household income further fell by 20% respectively. According to Moody’s, banks could keep their tier 1 capital ratio at 9.3% even under the scenario that economic recession prolonged for two years and house prices sharply fell by 30%.
The government will continue to properly manage the growth pace and structure of household debt and ensure that low-income households are not pressured under excessive burden of debt repayment beyond their means. At the same time, the government will also take a longer-term approach to the household debt issues to come up with more fundamental solutions in the long term such as boosting household income, creating more decent jobs and improving overall economic conditions.