South Korea's central bank said on Monday it could lend some 70 billion won ($69 million) to a state-run agency to support a government plan to ease the debt burden of some 370,000 low-income earners. The finance ministry offered last week to ease their debt burden, hoping the move would help domestic demand escape a two-year slump that has held back Asia's third-largest economy since a credit card bubble burst in 2002.
"The central bank, which is responsible for financial stability, may consider supporting the plan as the credit delinquency problem remains a major reason for the volatility in the country's financial system," the Bank of Korea said in a statement, adding that the government had asked for its support.
However, it said the final decision would be made by its monetary policy committee.
The plan could cover almost 10 trillion won in debt, including overdue interest.
It would involve the Korea Asset Management Corporation (KAMCO), a state-run restructuring agency, paying financial institutions for bad loans owed by people on welfare programmes.
KAMCO would then write off the overdue interest and defer repayment on the principal until the borrowers secure their own sources of income and graduate from government support programmes.
A senior official at the finance ministry said KAMCO might pay about 2 percent of the face value of such debt.
The ministry has said it could buy the overdue loans from financial institutions for half the price the market thinks the bad loans are realistically worth so lenders would be made to share the burden with the government.
Finance ministry and central bank officials have said private consumption, which accounts for more than half the country's gross domestic product, is turning the corner and could pick up significantly later in the year.
Despite some signs of a revival, however, analysts say the pace of recovery in domestic demand is still slow and may not be able to offset the impact of slowing export growth.
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