South Korea has one of the fastest growing levels of household debt as a percentage of gross domestic product among major economies in the world, a Switzerland-based international organization of central banks said Sunday.
Between January and March this year, the ratio of South Korea’s household loans to GDP stood at 88.8%, up from last year’s 84.3%. It was the third-biggest increase among the 42 countries surveyed by the Bank for International Settlements, Yonhap reported.
The growth is the third largest after Norway and Australia, which posted 6.2 percentage points and 4.9 percentage points, respectively.
Australia and Switzerland had the highest household debt to GDP ratio of 125.2%.
“Korea’s rising household debt is quite alarming,” said Suh Yong-gu, professor at Sookmyung Women’s University.
South Korea’s household debt-to-GDP ratio ranked No. 8 among countries surveyed, surpassing that of the UK, which is struggling with a housing bubble, according to the BIS.
Also, among 18 developing countries South Korea’s ratio topped the list for the 14th consecutive year.
Household loans totaled more than 1.2 quadrillion won ($1.08 trillion) in the second quarter of this year, data from the Bank of Korea showed.
“Middle-income households that have fallen to the low-income bracket are borrowing excessively to pay for living expenses, and this is only one of the many reasons behind the surge,” professor Suh said.
Highly indebted households are a major source of concern in South Korea, particularly as the US is expected to start raising its interest rates in the coming months, possibly affecting Korea’s own interest rate policy.
The US Federal Reserve hinted to up its interest rates at the end of the year during the Federal Open Market Committee meeting held on Sept. 21.
Concerns here are escalating over the possible rate hike, as a 0.25 percentage point increase in interest rate adds more than 2 trillion won of yearly interest costs, according to the BOK.
“‘House poor’ people and debtors will sit on even greater debt if the BOK decides to boost the base rate,” Suh noted.
