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Household Debt Increased 6.6% to 67.6 Trillion Won Last Year
Household Debt
Household Debt Increased 6.6% to 67.6 Trillion Won Last Year
  • By Cho Jin-young
  • February 27, 2015, 10:21
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The Bank of Korea announced on Feb. 26 that the household credit balance increased by 67.6 trillion won (US$61.4 billion) to 1.089 quadrillion won (US$989 billion) between 2013 and last year. 

The household credit balance is a typical index showing the level of household debt, including not only household loans in the banking sector but also sales on credit, loans provided by insurers, lenders, and public financial institutions. 

The increment had reached 73 trillion won (US$66.3 billion) in 2011, but declined to 47.6 trillion won (US$43.3 billion) in 2012. However, it rose to 57.6 trillion won (US$52.3 billion) the following year due to a rapid increase in mortgage loans. In particular, the amount added up to 29.8 trillion won (US$27.1 billion) in the fourth quarter of last year alone, the highest quarterly record. 

The increase between 2013 and last year was led by the relaxation of the loan-to-value (LTV) and debt-to-income (DTI) ratios that were implemented in August and the two key rate cuts, which led to increasing mortgage loans in the banking sector. 

The government, in the meantime, said on Feb. 26 that household debt is still at a controllable level. “The loans taken out by high-income earners account for 70 percent of the total, and the financial assets of households are more than twice the loans,” it mentioned, adding, “The security capacity is present while the default ratio and the LTV ratio are low, which means losses can be absorbed.”

Some experts have different opinions though. Chung-Ang University professor Park Chang-kyun pointed out that the ratio of household debt to income is excessively high in view of the examples of other countries. Chungnam University professor Yeom Young-bae added that the ratio has already exceeded the risk threshold of 60 percent to get close to the GDP.