Seoul Attack It's Home Grown Sub-Prime Problem

South Korea’s incoming government is planning a huge bail-out covering 7.2m consumer debtors behind on loan repayments or with poor credit ratings in an effort to spur consumption and prevent a repeat of a 2004 consumer credit crisis. President-elect Lee Myung-bak, an ex-Hyundai executive, promised help for consumer debtors during the campaign leading up to last month’s presidential election. South Korean households and small companies are facing a growing risk of default amid rising interest rates and a credit squeeze at the country’s banks.

But South Korea’s top financial regulator, the Financial Supervisory Commission, took things a step forward on Thursday when it outlined a bail-out plan to Mr Lee’s transition team. Under the plan, credit delinquents with a small amount of debt will have their interest payments reduced and repayment deadlines extended. Their credit records will also be cleared.

Local newspapers are saying that the planned measures could cost the government about $11bn.

The number of South Korean credit delinquents has fallen significantly since the government rescued about 1m debtors in 2004 after the bursting of a credit card bubble left banks with bad debts.

The number of debtors with more than Won500,000 ($534) owed and more than three months arrears on their payments stood at 2.7m at the end of June, down from a peak of 3.72m in 2003. But, according to finance ministry figures, some 7m South Koreans with poor credit ratings also owe about Won18,000bn in total.