Household loans extended by local banks have been increasing at an accelerating pace in recent months, raising concerns that bloated debt will boomerang with consequential risks to the economy when the coronavirus pandemic is brought under control down the road.

The amount of outstanding bank loans to households in the country rose by 18.3 trillion won ($16.7 billion), or 7.9 percent, from a year earlier to 982.1 trillion won in November, according to data released last week by the Bank of Korea.

The increase rate, which followed a 7.1 percent rise in October, was the highest on record. It was also approaching double the corresponding figure for January at 4.3 percent.

Credit loans grew by 7.6 trillion won on-year last month, followed by 6.8 trillion won in mortgage loans and 3.9 trillion won in other types of loans.

From a month earlier, the amount of household borrowings from local banks was up 13.6 trillion won in November, following a 10.6 trillion-won on-month gain in October.

Households in the country have recently rushed to borrow money to pay soaring housing costs and invest in the booming stock market.

A series of measures taken by the government over the past year to cool the overheated property market has failed to put a lid on home prices and rents.

Alarmed by the spike in household loans, the government announced early last month that it would impose tighter regulations on unsecured loans starting from Nov. 30. The measure prompted an excessive demand for credit loans in the intervening two weeks as investors expect housing and equity prices to continue to rise.

The steep increase in household loans is also attributable partly to the need to borrow more money to shore up livelihoods amid prolonged pandemic-caused difficulties.

Almost half of Koreans have either lost their jobs or seen their incomes fall since the novel coronavirus outbreak early this year, according to a report released last week by Statistics Korea. The country has recorded on-year net job losses every month since March.

The rapid growth in household debts amid decreasing incomes are feared to hurt many households’ debt-servicing capabilities and banks’ financial soundness.

A possible financial crunch would make it difficult for heavily indebted companies to borrow money from banks.

In more immediate terms, rising debt-servicing costs might reduce private consumption, deepening economic sluggishness and pushing marginalized firms over the cliff.

Bank loans to corporations increased by the largest-ever amount of 7 trillion won to reach 981.9 trillion won in November.

The sharp rise in both household and corporate debts recently led the Bank of International Settlements to raise the level of Korea’s private-sector debt risk to alarming from watchful for the first time in 11 years.

In the second quarter of this year, Korea’s credit-to-gross domestic product gap -- an indicator that measures private-sector credit against the long-term trend to judge how much buffers are needed against potential financial risk -- reached 13.8 percentage points, up 4.4 percentage points from the previous quarter. The figure is higher than the 13.2 percentage points recorded in the second quarter of 2009 in the aftermath of the global financial crisis.

There are concerns that Korea’s national debt could also rise to an unsustainable level if government expenditures continued to increase exceedingly to prevent and cope with problems stemming from bloated household and corporate debts in addition to financing expanded welfare programs.

As of the end of the quarter that ended in June, the country’s household debt stood at 1,887 trillion won, with the nonbanking corporate and state debts reaching 2,073 trillion won and 865 trillion won, respectively, according to BIS data.

Government officials have pledged to take measures to further tighten the scrutiny of debt-servicing capabilities in lending loans to households and guide banks and other lenders to strengthen their capacity to absorb possible losses.

But it should be noted that the fundamental way to reduce household debt is to increase household income by creating more jobs. To this end, drastic regulatory and labor reforms need to be carried out to encourage companies to make more investments and hire more workers.

President Moon Jae-in’s administration should discard its ill-conceived policies that have dampened corporate activity while overheating the property market.