Archive for April 8th, 2010
I think lending money to risky borrowers is a stupid idea. Wasn’t this one of the main reasons for the financial crisis in 1997? It may be a short-term solution for low-income earners (as a critic mentioned in the article) but will spell disaster in a few years or less. A way to win votes or not, risky borrowers have low-credit rating for a reason Einstein!
State loans for risky borrowersMove ahead of local elections could raise household debt risks, say critics
신용 낮은 사람에게 연 10%대 대출April 08, 2010
The government has decided to increase lending to low-income families with poor credit ratings in a controversial move that some analysts believe will raise the risk of debt defaults among households.
The announcement comes ahead of critical local elections in June. Critics said the scheme, which will lend up to 10 trillion won ($8.9 billion) over the next five years, is meant to win votes for the government in spite of potential dangers it poses to the financial system.
The decision by the government to tap new loans for distressed families from secondary financial institutions such as saving banks and mutual financial companies coincides with the growth of debt among households and fears of increased credit defaults.
“The government plan may ease the financial situation of low-income households with bad credit ratings in the short term, but in the long term it has the potential to damage the government’s financial position and that of financial institutions,” said Kang Seog-hoon, an economics professor at Sungshin Women’s University.
“This is a move targeted in winning votes, but it is a dangerous step as it could also bring moral hazard among lenders as it could send out the message that it is easy to get loans even if you don’t have the ability to pay them back,” he said.
The Financial Services Commission said yesterday that the ruling Grand National Party, the Finance Ministry and other government departments had agreed on loan measures.
The FSC said the new loans were meant to prevent low-income families from borrowing from loan sharks who demand high interest rates.
Borrowing from loan sharks has increased from 4.1 trillion won in September 2007 to 5.9 trillion won as of last September.
Saving banks will be contributing 40 billion won annually in credit guarantees, while mutual financial companies including the National Credit Union Federation of Korea and the Korea Federation of Community Credit Cooperative will be adding 160 billion won in annual credit guarantees.
Credit guarantees from the central and local government will amount to 200 billion won annually.
Although interest rates charges on the loans will be left up to the decision of each financial institution, the annual interest rate will be set below 20 percent.
The FSC said the government-backed credit loans will likely replace the 10 trillion won in borrowing from loan sharks.
Additional measures will include reducing the maximum interest rate allowed to be charged by loan sharks from 49 percent to 44 percent starting from June.
The government said it will consider cutting an additional 5 percentage points charged on such loans after monitoring the financial market situation a year later.
The government promised to increase credit support for low-income families that prove that they are working to improve their credit rating by paying back loans on schedule.
“By expanding the government-guaranteed loans on low-income borrowers who lack the ability to put up collateral we hope to lower the burden on loan interest from the current mid-30 percent level to mid-10 percent,” said Hong Young-man, an official at the Financial Services Commission.
By Lee Ho-jeong [email@example.com]
This doesn’t look too good for foreigners in general but an intelligent person would realize that that 1,300 is an extremely low percentage of the 1 million+ foreigners in Korea. Even a smaller percentage are native English speakers according to the stats at the end of the article.
1,300 Foreign Criminals Arrested Over Five Months
More than 1,300 foreigners were arrested in Korea for committing various offenses during the last five months by a special investigative force made up of prosecutors and police.
Violent crimes, drug trafficking and economic violations accounted for most of the offenses.
Statistics show more than two thousand foreigners are involved in smuggling contraband goods into Korea annually.
Around half of the offenders were from China with others coming from such countries as Thailand, Vietnam and the United States.
Was a little alarmed to be honest when I saw this today but looks like my stocks are doing fine….for now. Investment tips in Korea are always welcome!
|Local investors selling off local stock funds en masse|
|Foreign investors are expected to buy considerable amounts of local stocks from April 7 to 19|
On Tuesday, Cho Jin-su (not his real name), a 42-year-old resident of Seoul, sold his local stock fund valued at 50 million Won ($44.5 thousand) that he initially signed on for in June of 2008. This is because of his painful experience of watching the KOSPI rise to 1750 only to later to fall to the 900 level. His final earnings rate was 5 percent. He said it seems the stock prices might rise again, but thinking over his missed opportunity to sell last year, it thought it was time to sell. Seeing news reports that it seems the timing of the coming interest rate hike will be delayed, he has decided to invest the money he made from selling his funds in bonds that pay monthly interest.
With stock prices settling at the 1700 line, a situation is developing in which local funds are being sold en masse. In the first two days of April alone, over 1 trillion Won in stocks were sold, with sales for the month already roughly equal to the entire month of March (1.86 trillion Won). At the start of the year and last September, with stocks just about to break the 1700 line, there were daily sales of 10 to 20 billion Won, but never before have there been single days in which 50 billion Won in stocks are sold, as is the case now.
The mass selling of funds is naturally detrimental to the stock market. An important reason that stock prices are sidling along even though corporate earnings and prospects both look good is the scale of selling of personal funds. It also has an impact on the real economy. Kim Cheol-bae of Korea Financial Investment Association (KOFIA) said the money that should be playing a productive function through the stock market, which serves as companies’ window for raising capital, is fleeing funds, leading to short-term immobilization. He said they are looking for measures such as plans to grant benefits to long-term investors. On the other hand, there are also those, such as Park from Merrill Lynch, who said if you view the selling as something that needed to be done because funds were too hot, it could be a positive phenomenon.
The reason stocks are settling at 1720 despite the mass sale is because foreign buyers have been able to accept the total. Foreign buyers will reportedly engage in a buying spree of local stocks from April 7 to 19. Kim Hak-gyun of Daewoo Securities said he thinks the capital flow from funds would continue until stocks crossed the 1800 line and other factors show more optimism.
Some are optimistic, noting that compared to foreign companies, the price-earning ratio of local companies is much lower. Kim Cheol-bae said South Korean firms are proving their competitiveness and recovering faster from the financial crisis than those of other nations, so the selling of funds by local investors, unlike foreign investors, was to miss new investment opportunities.
Please direct questions or comments to [firstname.lastname@example.org]
Something that may be useful for some from the Seoul City Blog. Does sound like a good deal if you travel relatively moderate distances within Seoul.
The Seoul Metro Pass was created to be a discounted and more convenient way for commuters to get to and from work every day. The card is tapped against the readers on the turnstiles in subway stations in the same way that T-Money, eB, and other transit cards are, but the catch is that they can only be used on the Seoul Subway, (they cannot be used on busses or taxies).
Here’s what it looks like:
The card itself costs 2,500 won, and works similar to a T-Money or eB card. They can be purchased from a customer service counter in most of the bigger stations, (think Yongsan, Seoul Station, etc), but they are often available in the smaller ones as well. When you buy it, (or if you have one), you can take it the attendant or activate it at a transit card “recharge” machine.
*Not all of the “recharge” machines are equipped to activate the metro passes, but the one I use looks like this:
Rather than “recharging” the card with a certain amount of credit before use, the metro pass works by determining the distance of the farthest trip you will be taking, and paying for a month’s worth of trips in advance.
The “activation” is good for 30 days from the day it was activated. During this month, you are allowed 60 trips on the subway, which evens out to around 2 trips a day for a month.
There are two kinds of pricing methods for the Seoul Metro Pass:
For those who will only be traveling inside Seoul proper, you can “activate” your card for 39,600 won. This will allow you to take up to 60 trips on the subway in Seoul within the 30 day period.
For those who will be traveling to the suburbs, or further down the subway line to another city, pricing is set by the longest trip you will be going on, and ranges from 39,600 won to 89,800 won. The pricing plans for the Metro Pass are as follows:
From your starting point within Seoul, if your destination is
Trip Distance - Price
Up to 20km - 39,600 won
25km - 44,900 won
30km - 48,600 won
35km - 52,400 won
40km - 56,100 won
50km - 59,800 won
60km - 63,600 won
70km - 67,300 won
80km - 71,100 won
90km - 74,800 won
100km - 78,500 won
110km - 82,300 won
Over 120km - 89,800 won
As an example, someone who goes from Suwon Station to City Hall Station in the morning, and takes the same trip back, will pay 1,600 won for each trip; 3,200 won per day. Let’s say that in a given month they go to work 5 days a week for 4 weeks, which is 20 days.
3,200 won per day X 20 days = 64,000 won per month, with a T-money card. The cost of a month on the metro pass for the distance of Suwon <-> City Hall (42.6km) is 59,800 won, so they would save a little over 4,000 on their work commute, and still have 20 subway trips to use on other trips.
The metro pass is not always the best choice, but can be economical if you have to commute to work, or end up taking the subway a lot. You can use Seoul Metro’s Subway Line map tool:
to find out exactly how far your trip is and how much the cost of a monthly metro pass will cost.