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EDITIONS
Monday, 3 February, 2003, 10:36 GMT
South Korea's credit card headache
Seoul street scene
Korea's economy is being driven by consumer spending

South Korean consumers were the engine driving the country's economic growth last year.

The government encouraged more people to use credit cards, making it easier for the authorities to fight tax evasion.

And shoppers were aggressively targeted by banks and credit card companies with few, if any, financial checks.

"There have been severe social problems - like suicide attempts"

Kim Seung Deok, debt centre

The average South Korean now owns at least four credit cards, but alarm bells are ringing, as household debt has nearly doubled over the past five years.

Record numbers of Koreans are in arrears on their credit card payments and face hefty interest charges of around 20% on cash advances.

Essentials to luxuries

These days, Jung Jong Man, has to make do with window shopping instead of the real thing.

He owns seven credit cards and over the past year and a half he has racked up debts of $40,000.

At first, when he only owned one credit card there were no problems and he used it to buy essentials like clothes and shoes.

"But I'm a human who can make mistakes, like anyone," he said.

"After a few months I started to use the card to pay for expensive drinks when I was out with friends."

"It wasn't my aim to spend so much, it just happened so easily."

Spiralling problems

He's not alone.

"There have been severe social problems - like suicide attempts"

Kim Seung Deok, debt centre

A government-backed centre, set up just a few months ago to help people in debt, deals with around 600 inquiries a day.

Credit card debt is at a record high.

One in ten of the population have fallen behind on their monthly payments.

Kim Seung Deok from the debt centre believes it will get worse.

"There have been severe social problems - like suicide attempts and a case where soldiers tried to rob a bank because of heavy debt," he said.

"Our centre has been trying to help as many people as we can, so they can get back to their normal lives."

Wider impact

The army has launched a new drive to educate soldiers on how to manage their money wisely, before they get into debt.

Credit card usage is relatively new in South Korea, but some worry that the addiction to plastic and the rapid increase in consumer credit could make the country vulnerable to future economic shocks.

Park Yung Chul, professor of economics at Korea University, believes credit card debt could have a contagious effect, causing a chain reaction that may affect the operations of other financial institutions.

"If the credit card companies start losing money and become insolvent, then many of the financial institutions which have lent money will suffer as a result," he said.

"Many of these credit companies are also owned by the banks and other financial institutions.

"So credit card companies problems may be... the tip of the iceberg in the sense that the financial sector is concealing a large amount of non- performing loans and in fact financial institutions are not as healthy as they appear to be."

There are signs that consumer spending is cooling.

The government has ordered banks and credit card companies to tighten lending rules and reduce limits on cash advances.

But that's likely to make it harder for people to roll over existing loans and, in the short term, credit card delinquency is expected to worsen.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Caroline Gluck
"Credit card debt is at a record high"
See also:

08 Jan 03 | Business
18 Dec 02 | Business
04 Dec 02 | Business
19 Nov 02 | Business
28 Jan 03 | Country profiles
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