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Household debt topped the list of key systemic risks cited by market watchers at 87%.
Household debt topped the list of key systemic risks cited by market watchers at 87%.

Systemic Risks Threaten S. Korea Financial System

Systemic Risks Threaten S. Korea Financial System

South Korea’s growing household debt and geopolitical risks are two major systemic risks facing the country’s financial system, a survey showed Monday.
Household debt topped the list of key systemic risks cited by market watchers at 87%, up from 85% in May, according to the semiannual survey conducted by the Bank of Korea, Yonhap reported.
South Korea’s overall debt incurred by households came to 1,388.3 trillion won ($1.22 trillion) as of the end of June, up 10.4% from a year earlier, according to data compiled by the central bank.
In August, the government designated all 25 districts in Seoul and two cities—Sejong and Gwacheon—”overheated speculative districts” to try to rein in household debt. Sejong is an administrative city located 130 kilometers southeast of Seoul, and Gwacheon lies just south of the capital.
The government also reduced the loan-to-value and debt-to-income ratios to 40% for home purchases in all the designated speculative and overheating speculative districts. This limits homebuyers’ borrowing to more than 40% of their property value and puts a maximum of 40% on the level of their income that can be used for mortgage payments.
The BoK said the household debt issue is followed by geopolitical risks and a looming US rate hike at 82% and 75%, respectively.
Tensions heightened on the Korean Peninsula following North Korea’s sixth and most powerful nuclear test and a series of ballistic missile tests. A war of words between the leaders of North Korea and the United States has stoked fears of a possible military conflict on the peninsula.
Still, these tensions have subsided in recent weeks, as North Korea has not carried out any provocation since Sept. 15, when it launched a Hwasong-12 intermediate-range ballistic missile over Japan into the North Pacific Ocean.

 

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