South Korea Household Debt Surpasses $1.3t

South Korea’s household debt has hit another record high, surpassing  $1.3 trillion as of September. Data from the Bank of Korea shows the amount of debt is increasing by an average of more than $9 billion a month.

The central bank identified the government’s easing of regulatory measures on housing loans in 2014 as the main reason behind the snowballing debt, news outlets reported.

It forecasts that household debt will continue to increase, despite President Moon Jae-in administration’s recent measures to control real estate speculation, pointing to the soaring price of residential apartments in recent months.

South Korea’s household debt soared 34.4% over the past three years, buoyed by the government’s policy of easing lending regulations for home mortgages and by low interest rates, data showed Saturday.

At the end of September, household debt stood at 1,419.1 trillion won ($1.306 billion), up 362.7 trillion won from three years earlier, BoK said. In comparison, household debt grew by 165.2 trillion between September 2011 and September 2014.

In August 2014, the government eased lending rules for home mortgages to prop up the property market as part of its economic stimulus packages, Yonhap reported.

Although there is little risk that household debt may spark a financial crisis, rising debt chokes off private consumption and makes it difficult for the central bank to raise its key rate amid global monetary tightening.

Meanwhile, the financial services commission has revised the way lenders review the income of borrowers as part of efforts to curb household debt and prevent potential defaults.

The regulator will require banks to ask for income records from the past two years, up from the current standard of one year. The change is aimed at proving the stability of borrower’s income.

When assessing borrowers’ indebtedness, financial institutions will also need to count the principal of borrowers’ existing mortgages instead of considering only interest.