Korea’s household debt ratio soars

South Korean households’ debt problem is higher than other emerging economies, a research report from a Swiss financial organization showed Tuesday.

According to the Bank for International Settlements, the nation’s ratio of household debt to gross domestic product was 84 percent at the end of 2014. The debt figures include microcredit loans issued to the self-employed.

Korea topped the list among the 14 major emerging countries, whose consumer loans were studied by the BIS, in the household debt-GDP ratio.

The ratio for Russia stayed at 20 percent, followed by Turkey with 21 percent, Brazil with 25 percent and South Africa with 37 percent.

Korea also outstripped major emerging countries in Asia in the ratio. Thailand and Malaysia posted 69 percent, trailed by Hong Kong with 66 percent and Singapore with 61 percent, while the figure for China stood at 36 percent.

The figure of 84 percent was also higher than the average, 73 percent, of 12 major developed countries. The United States recorded 78 percent, Spain was at 71 percent, Japan at 66 percent, France with 56 percent, Germany with 54 percent and Italy had 43 percent.

Switzerland posted the highest level of 120 percent, followed by Australia with 119 percent and Canada with 93 percent. The ratio for the United Kingdom and Sweden were similar to that of Korea -- 87 percent and 83 percent, respectively.

Since the end of 2007, just before the 2008-09 global financial crisis hit the nation, Korea’s household debt-to-GDP ratio has surged by 12 percentage points.

Its increase also outpaced the average, 10 percentage points, held by the 14 emerging nations over the corresponding period. In contrast, The 12 advanced countries saw the ratio fall 7 percentage points on average, according to the BIS.

Concerns have continued to grow over the situation. “Local financial firms have been reckless in doling out money – through both mortgage-backed and uncollateralized lending -- though the growth of ordinary citizens’ disposable income was negligible,” said a spokesman for a consumer advocate entity.

This year, consumer lending by local commercial banks has risen to the highest level in nine years since financial regulators started to compile official statistics on the banking sector’s collective household loans in 2006.

Market insiders mostly agree that it was ascribable to rapidly increased mortgages amid the record-low base rate of 1.5 percent.

They say that more seriousness lies in the mounting credit-based loans, issued to the low- and middle-income bracket for their living expenses from the secondary lenders and loan sharks at annual rates of about 20-30 percent.

By Kim Yon-se (kys@heraldcorp.com)