S. Korea’s household debt excessive, can hurt economic growth: BOK
SEOUL-- South Korea's household debt is excessive in terms of size and pace of growth and can restrict the country's ability to grow, the central bank said Sunday.
The Bank of Korea (BOK) said in an assessment in its latest foreign economic focus report that the country's household debt was equal to 92.8 percent of the gross domestic product (GDP). This is higher than the 75-85 percent range that many foreign thinks tanks believe is steep, it said.
As of late March, the country's overall household debt came to an all-time high of 1,360 trillion won (US$1,207 trillion), up 11.1 percent from 1,224 trillion won a year earlier.
The World Economic Forum estimated household debt exceeding 75 percent of GDP can signal danger, with the Bank for International Settlements warning that the critical limit was at around 85 percent. Both organizations gave slightly higher tolerances for corporate debt.
The latest findings by the BOK showed South Korea topping the "limit" along with Switzerland, Australia, Norway, Canada and Sweden. The countries cited saw household debt-to-GDP rise an average 2 percentage points annually in the last five years.
Of the five, Switzerland, Norway and Sweden had debt equal to more than 100 percent of the GDP but they also have good social welfare nets in place. This means South Korea is actually more vulnerable to high levels of indebtedness than others, since its social welfare system is not as comprehensive.
It pointed out that any rise in interest rates could lead to problems in consumption and investment that can hold up economic growth.
The BOK, citing the BIS, said that if South Korea's interest rates go up 2.5 percentage points, the country's debt service ratio will jump 3.7 percentage points. This will mean more income going to service debt and less money being spent elsewhere.
On the positive side, the latest report said there is little likelihood of the world being rocked by another financial crisis.
Source: Yonhap News Agency