Financial watchdog to seek 'soft landing' for household debt, bring debt increase under pre-pandemic levels

South Korea's financial watchdog said Wednesday that it will continue to prioritize a "soft landing" for soaring household debt and bringing debt growth down to pre-pandemic levels next year.

In a report laying out its policy goals for next year, the Financial Services Commission (FSC) also said that it will "preemptively" manage vulnerability risks facing the financial sector amid worries that snowballing corporate and household debt and rising interest rates could hurt their asset soundness.

"We will push to induce a soft landing for household debt," the FSC said, adding it will make efforts to normalize household debt growth back to pre-COVID-19 levels of the 4-5 percent range.

"While inducing a soft landing for loans made to small merchants and self-employed people, we will preemptively manage vulnerability risks in the financial sector, including the crisis-management capacity of non-banking firms," it added.

The FSC cited quickening household debt growth as the "largest risk factor" facing the country's economy, saying that the pace of debt growth has been faster than other major economies since the onset of the coronavirus pandemic.

Household debt has increased sharply amid record-low interest rates and people's rush to borrow money to buy homes spurred by skyrocketing home prices.

According to central bank data, household credit came to a record high of 1,844.9 trillion won ($1,583.9 billion) as of end-September, up 36.7 trillion won from three months earlier.

Concerned about soaring household debt and inflation, the government has recently tightened the spigot of lending by unveiling a series of measures aimed at making it tougher for people to get financial loans.

Last month, the Bank of Korea also raised its key interest rate by a quarter percentage point to 1 percent, the second rate hike in three months. BOK Gov. Lee Ju-yeol has hinted at a further rate hike early next year to rein in inflation and household debt jitters.

Despite efforts to keep a lid on the overall household debt, the FSC said that it will continue its efforts to minimize hurdles for ordinary people and those in real need of borrowing. (Yonhap)