Tax revenue in boom… while household & enterprises in growing loan
Cho Eun Ae | eunae@ | 2018-05-23 12:20:48

Weakness of many of the borrowers household loan are pouring about half of their income into interest repayment, and the percentage of firms whose debt repayment ability is falling has also surged recently. And, concerns about the deterioration of household-corporate debt have also been rising as the interest rates have come to the fore. Companies that have supported the Korean economy and the household economy are in crisis due to the rapidly increasing debt. Meanwhile, it is pointed out that the national tax revenue is in great contrast with the record-high boom year after year.

According to the Bank of Korea, the National Statistical Office, and the LG Economic Research Institute on May 22, 22.8 % of households lending weakened at the end of last year, with 1.49 million, accounting for more than 40 % of their income.

Vulnerable borrowers` lending amounted to KRW 82.7 trillion, which increased by KRW 4.2 trillion from multiple borrowers and low-income earners. Real estate-related loans decreased as a result of the implementation of the new loan repayment ratio (new DTI), which is the government`s policy to curb lending, but other loans, including credit loans, rose by KRW 2.7 trillion. It is the largest increase in April since 2008 when the Bank of Korea began to compile statistics. Earlier, the National Bureau of Economic Research (NBER) warned that new household loans could slow the economy in the medium term (after five to seven years). Based on the results of the study, it is analyzed that the increase in domestic household loans could be a negative threat to the Korean economy in the future.

Meanwhile, the bigger problem is that the size of the household debt is increasing over time. The BOK estimates that domestic household debt has recently exceeded KRW 1,500 trillion. The Bank of Korea is scheduled to officially reveal surpassing KRW 1,500 trillion in household debt on May 23.

Interest rate hikes have been added to the US interest rate in recent years. The average lending rate of commercial banks reached 3.59% in the first quarter, the highest since the third quarter of 2015 (3.63%). The Bank of Korea is taking the utmost care to raise interest rates in light of bad economic conditions such as domestic economic slowdown and employment shocks, but the market interest rate has already risen sharply every month due to the effect of the US interest rate hike.

On the other hand, considering the concerns over the reversal of the interest rate between the US and the US and the Bank of Korea is likely to raise the interest rate during the second half of the year, and it is pointed out that a `red light` will be turned on the redemption of loans mainly on vulnerable borrowers.

The same is true of companies that have supported the Korean economy. According to the LG Economic Research Institute, the portion of companies that are unable to repay their debts rose to 11.8 % last year. At least one out of ten companies is not able to repay the principal as well as the interest of the loan due to its sales activities. In 2012, companies that are vulnerable to debt restructuring peaked at 14.2%, but declined to 8.8% in 2015, but are returning to their previous level.

The polarization of the ability to repay debts has also intensified. Corporations with low interest payment capabilities have fallen sharply in the past year. The interest coverage ratio of a company with a 20% of interest payment capability was 0.8 in 2016, down to 0.5 in the previous year. The share of companies that rely on short-term borrowings in the meantime has soared to 46.3 % last year from 41.0 % in 2012-2014. About half of all companies rely on short-term borrowings with high interest rates compared to existing corporate loan products. They are in emergency management.

Economists point out that a large number of companies may fall into short-term liquidity crises if they fall into financial instability at the time of maturity, or if operating performance deteriorates. Sung Tae-yoon, a professor of economics at Yonsei University, mentioned that "The rise in interest rates and the regulation of various loans could pose a risk to borrowers who are vulnerable to household lending." There should be a policy that can actually lower the cost burden when the corporate cost structure deteriorates and the economy slows down. "He said.

Meanwhile, the government`s tax revenues continue to be the greatest ever as both the household and the business are facing the worst-case burden of lending. Monthly financial trend of Ministry of Strategy and Finance According to the May issue, March national tax revenue rose KRW 28 trillion to KRW 5.9 trillion from the same period last year. Corporate tax (KRW 18.4 trillion) and income tax (KRW 3.7 trillion) led to an increase in tax revenue.

By Cho Eun Ae eunae@

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