South Korea’s household debt in the fourth quarter last year surged at its fastest pace in nearly nine years due to cheap borrowing costs and recovery in the property market, official data showed Wednesday.
During the September-December period, household debt rose by 41.1 trillion won ($33 billion) -- the biggest quarterly gain on record -- to reach a total of 1,207 trillion won, according to provisional data by the Bank of Korea.
This is the first time that household debt -- which includes loans from banks and other financial institutions as well as credit-card spending -- has exceeded the 1,200-trillion won mark in the country’s history.
Analysts here have termed Korea’s household debt as a “time bomb” that could explode if interest rates begin trending higher, dealing a heavy blow on the economy as domestic consumption could further deteriorate.
According to the BOK, the jump in household debt in the fourth quarter was prompted by increased home-backed loans as the government announced steps to adopt tighter lending rules to curb the snowballing loans from February as the Korean central bank has been keeping its key interest rate at a record low level of 1.5 percent
“The size of household debt expanded due to growing demand for home-backed mortgage loans as people rushed to borrow money before local banks started implementing the stringent credit control guidelines,” Lee Sang-yong, a BOK official, said.
There have been growing concerns that excess borrowing could be a drag on Asia’s fourth-largest economy amid slowing growth. Household debt has been on a steady increase since 2002 when the figure stood at 464.7 trillion won.
Despite the fears, the government said the increase in household debt is helpful to economic recovery, adding that the debt growth is expected to slow in volume this year.
“The recent surge in household debt has supported the economy’s recovery by boosting real estate transactions and propped up spending,” the Finance Ministry said in a statement Wednesday after the BOK released the data.
In 2015, the number of home transactions here hit a fresh high of over 1.19 million, spiking 18.8 percent from the previous year.
Consequently, mortgage loans extended by commercial and savings banks gained 22.2 trillion won on-quarter to 563.7 trillion won as of end-December, accelerating from a 14.3 trillion won increase in the previous quarter.
By Park Han-na and news reports (
khnews@heraldcorp.com)
