World Economy

S. Korea Household Debt Growing Fast

S. Korea Household Debt Growing FastS. Korea Household Debt Growing Fast

An average South Korean household spends nearly 24% of its total disposable income on meeting debt obligations data showed Monday, amid concerns over record-level household debt.   

As of March, an average South Korean household has 342 million won ($290,800) in total assets, 61.8 million won in debt and an annual disposable income of 39 million won. All three grew modestly from a year ago, but the income marked the fastest gain of 2.7%, Yonhap reported.

These are some of the key findings contained in a report released Monday jointly by the Bank of Korea, Statistics Korea and the Financial Supervisory Service to provide a snapshot of the financial well-being of South Korean households.

Based on a survey of 20,000 households and data collected from the start of 2014 till March this year, the report comes as economists warn of South Korea’s fast growing household debt as a key potential risk for the economy. The country’s total household debt stands at 1,166 trillion won as of November, on path to surpass the 1,200 trillion won mark.  Monday’s report showed the average household’s debt grew 2.1% to 61.8 million won, of which borrowing from financial institutions makes up 70%.

Annual income grew 2.3% to 47.6 million won, while the after-tax income came in at 39.2 million won, 2.7% higher than the previous year.

The debt service ratio–a key gauge of a household’s financial soundness represented as a percentage of disposable income used to repay interest and principal–posted a marked growth, rising to 24.2% from the previous year’s 21.7%.

The increase is mainly due to a rise in repayments of interest and principal by households, rather than the rise in debt itself.

“While households’ financial liabilities grew by 4.6%, the amount used in repaying interest and principal increased by 14.6%,” the report pointed out.

The South Korean government has been pushing for restructuring of household loan structures, which typically carried long grace periods. Following the government’s initiative, local banks devised earlier this month new lending guidelines to strictly check borrowers’ repayment abilities based on their income and grant shorter loan periods.

“Household income maintained steady growth, helped by gradual recovery of the economy, improvements in employment and increased investment in welfare-related sectors,” the report said.  

Some 16.3% of Koreans live under the poverty threshold of 11.6 million won in annual income, it also showed.