Household debt, after peaking at 963.8 trillion won at the end of December, declined to 961.6 trillion won at the end of March. But this should not give top economic policymakers a false sense of security. Household debt is still a ticking bomb.

Debt grew at alarming rates in the wake of the 1997-98 Asian financial meltdown ― twice as fast as disposable income. During the 1999-2012 period, debt accelerated at an annual rate of 11.7 percent. It took just eight years for household debt to double from 2004 levels.

But growth in disposable household income trailed far behind, with an annual average increase of 5.7 percent. No wonder nonperforming assets piled up at banks ― a cause of great concern to President Park Geun-hye’s administration.

Against this backdrop, the National Assembly held a hearing on household debt on Thursday. In testimony, Hyun Oh-seok, deputy prime minister for economic affairs, acknowledged that household debt was at a critical level. Still, he claimed it was not serious enough to cause a financial crisis.

But his diagnosis was not reassuring, given that the ratio of household debt to gross domestic product, which stood at 89.2 percent, was dangerously high. It surpassed not just the ratio for member states of the Organization for Economic Cooperation and Development, at 74.5 percent, but the 85 percent for Spain, which is now undergoing a crisis.

Even more troublesome are potential debt defaults, with a large number of low income households having taken loans from three or more lenders. Many of them are turning to nonbank financial institutions and borrowing at higher interest rates.

According to a news report, the number of households with multiple borrowings stands at 3.22 million, with 44 percent of them earning 30 million won or less a year. As they are shunned by commercial banks, they borrow from insurance companies, savings banks and other nonbank lenders that charge them higher interest rates. As a result, nonbank lending accounts for almost half of total household borrowing.

Another problem is the high portion of loans secured against homes. Mortgages account for 56 percent of the total household debt. The home-secured lending, which has already exceeded the statutory loan-to-value limit of 60 percent, amounts to 53 trillion won. This problem is likely to be worsened because the property market, despite incentives, has failed to pull itself out of a protracted slump. The market is still in the doldrums although the Park administration has recently taken measures to boost trade.

The administration is planning to spend 870 billion won to help borrowers in distress with debt adjustment. But that will not be enough. It needs to prepare itself to take preemptive measures before household debt causes a crisis. In this regard, it is urged to heed the central bank’s proposal to create a bad bank.