South Korea’s soaring household debt, boosted by low borrowing costs and eased mortgage lending, is touching off concerns on the ability of the borrowers to repay it, according to experts.

“It is the soundness of the debt that matters the most,” said Lee Geun-tae, economist at LG Economic Research Institute on Monday.

Depending on economic circumstances, household debts are not always considered negative, as they may promote consumption and activate the market, he explained.

“But recently, there have been no signs of such a virtuous circle, and we have a situation where the debt is piling up without leading to any growth in production, consumption and investment,” he said.

The nation’s household debt amounted to 1.06 quadrillion won ($948 billion) as of end-September, up 22 trillion won or 2.1 percent from the previous quarter, according to the Bank of Korea Monday. 

The total pending loan balance as of end-October was 547.4 trillion, up 6.9 trillion won from the previous month. The on-month gain was the sharpest since the bank began compiling the data back in 2008.

The government is now looking into ways to address the snowballing household debt.

“We are very concerned about the pace of household debt growth seen in the past few months,” said an official at the Financial Supervisory Service. “If the trend continues, measures will be put in place to control the growth pace.”

He said the measures, if taken, would be focused on putting stricter rules on lending rather than adjusting the ceiling for home-backed loans.

Jun Sung-in, professor of economics at Hongik University, agrees that the government should take action to revitalize the domestic market, instead of hoping that the alleviation of loans will have a leverage effect.

“Many people tend to focus on whether the financial organizations can afford the increasing amount of loans, but we should pay more attention to whether the low-income households (that are reliant on loans) can deal with their debts,” he said.

He also pointed out that the nation’s increasing amount of household debt was followed by a rising number of people filing for bankruptcy.

Earlier this year, the Ministry of Strategy and Finance announced that it would eliminate the ceiling for mortgage loans, pledging to lower the threshold for money borrowers.

Also, the BOK lowered the key interest rate to an all-time low of 2 percent in October. Industry watchers are predicting that the central bank would stand pat on the base rate in its next meeting scheduled for Dec. 11.

By Bae Hyun-jung (tellme@heraldcorp.com)