Household Debt Soars to W1,500 Trillion
22 November, 2018
Korea's household debt has surpassed W1,500 trillion or an average of W80 million for every household in the country (US$1=W1,130).
The Bank of Korea said Wednesday that the country's total household debt amounted to W1,514.4 trillion as of the third quarter. That includes loans from banks and other financial institutions as well as unpaid credit card bills.
Household debt grew 6.7 percent from the same period of 2017, but wages increased only 4.5-percent. The government has clamped down on rampant bank lending to stem rising debt, but progress has been elusive.
Last year, household debt grew by W100 trillion, and it has been rising steadily due to the overheated real estate market.
Housing loans were the main reason for the steep rise. The BOK said the growth rate of debt is slowing due to strengthened government regulations. It jumped W31.4 trillion during the third quarter of 2017 but W22 trillion in the third quarter this year.
But the interest burden remains a ticking time bomb for households since it will rise once the BOK can no longer resist hiking interest rates.
The BOK has kept the base interest rate frozen for a year, but banks here have raised their own loan interest rates from 3.39 to 3.57 percent since the U.S. Federal Reserve hiked the key interest rate there.
If the Fed continues raising interest rates next year and the BOK follows suit by one percentage point, the interest burden on household loans here rises by W15 trillion or around W800,000 in additional payments for each household.
An estimated 390,000 households are classified as "high risk" who will be unable to repay their debts once the base interest rate rises by one percentage point even if they sell off all of their assets.