BOK Warns of Post-Pandemic Financial Bubble
23 June, 2021
Korea's finances are at their most unstable since the global financial crisis therefore of record-high household debt and surging apartment prices, the lender of Korea warned Tuesday.
The BOK said in a written report that the economy could suffer enormously if interest rates rise following the coronavirus pandemic, leading to the heavily leveraged real-estate and currency markets bubbles to pop.
Household debt has soared to an archive W1.77 quadrillion, while the average price of a flat in Seoul has surpassed W1.1 billion (US$1=W1,135).
Korea's financial vulnerability index (FVI), which measures risk factors based on asset prices, loans and soundness of finance institutions, has already reached 58.9, the best since the 2008 financial meltdown (73.6).
Any upsurge in the index shows a higher risk of economic shock. "Looking at the growth of asset prices and debt, the index is likely to rise close to levels seen through the global financial crisis," BOK Deputy Governor Park Jong-seok said.
Household debt increased by W165 trillion since the end of 2019, right before the pandemic, and is setting new records each quarter therefore of a sharp growth in housing loans and borrowing to invest in stocks.
If the real-estate bubble bursts, W747 trillion in housing loans, which constitute the largest portion of household debt, could possibly be at risk. In line with the BOK's analysis, the ratio of apartment prices to income soared 13 percent on-year by the finish of 2020, the sharpest growth in the OECD, where in fact the average was four percent.
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