» The red bar above shows the rapid increase in household debt in South Korea in the period from June 2007 to June 2008. The amount of household debt was 596 trillion won (US$529 billion) in June 2007 and 660 trillion won in June 2008.

South Korea’s household debt has risen to a record 660 trillion won (US$580 billion) and the amount of debt per household is close to 40 million won. The sharp rise in household lending comes at a time when inflation and interest rates are rising, raising fears that debtors will be placed under a great deal of pressure to repay their loans and many of the household loans taken out will turn into bad debt.

According to a report released by the Bank of Korea yesterday, household debt, which included household loans worth 622.89 trillion won and credit card installments worth 37.41 trillion won, soared to 660.3 trillion won as of the end of June, up 3.1 percent, or 19.83 trillion won, from the end of March.

Compared with the same period a year earlier, household debt has jumped 10.7 percent, the fastest jump since the fourth-quarter of 2006, when debt surged 11.6 percent year-on-year amid a prick in the property market bubble. The growth in the amount of household debt in the second-quarter was nearly twice that in the first-quarter of this year, when the amount of debt rose by 9.79 trillion won.

As of 2008, the National Statistical Office estimated the number of households in South Korea at approximately 16.67 million. Based on that number, the amount of debt per household can be calculated at 39.6 million won. Compared with the end of March, the number has risen by 1.19 million won. As of the end of June, the amount of debt per household had doubled from what it had been at the end of June 2001, when it stood at 19.98 million won.

Household debt jumped in the second quarter because of the increase in mortgages taken out by people who bought new homes two or three years ago as they prepared to complete payments for the new homes. In addition, there was a rising demand for mortgage loans for people who purchased new apartments built after old apartments in government-led “new town” areas had been demolished. Of the number of new household loans taken out during the second-quarter, mortgage loans accounted for 47.1 percent, compared with 40.7 percent a quarter earlier. With debtors grappling with heavier repayment burdens, the amount of disposable household income is expected to decline, weakening already sluggish domestic consumption. What’s worse, there are increasing concerns that a large number of people could default on their household loans if the property bubble bursts and home prices fall sharply.

In an economic policy forum at the National Assembly on September 2, Bank of Korea Governor Lee Seong-tae voiced concerns about the increase in household debt, saying, “The problem of household debt will pose a serious burden for our economy.”

Lee Sang-yong, a central bank official in charge of financial statistics, said, “Household debt has surged due to the burden of the down payment and the outstanding payments on new homes. The interest payments won’t be low because, of the total 19.8 trillion won increase, 15 trillion won was in credit loans.”

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