Household debt crisis shows little sign of abating: data

The increasing pace of household credit in South Korea showed little sign of abating, data showed Sunday, and the lingering debt crisis is likely to affect Korean households‘ finance amid central bank pressure for a key rate hike in tandem with the US Fed hike last week.

Total credit to households as a percentage of gross domestic product came to 94.8 percent as of the fourth quarter of 2017, up 2.2 percentage points from the year prior, according to data by the Bank for International Settlement released earlier in June.

The rate of increase was the third-steepest among the surveyed 43 countries by the BIS, following China’s 4 percentage points and Hong Kong‘s 3 percentage points. The standing figure as of end-2017 was the seventh-highest.

Also, the debt service ratio of households in Korea in 2017 came to 12 percent, marking the highest since 2012. The figure rose by 0.6 percentage point on-year.

The credit-to-GDP ratios in private non-financial sectors was also on the gradual rise. The figure came to 193.1 percent as of the fourth quarter of 2017, up 0.3 percentage point on-year.

Meanwhile, according to data from the Bank of Korea, Korea’s volume of gross household credit reached 1,468 trillion won ($1.3 trillion) as of the first quarter of 2018, up 8 percent compared to the previous year.

The household credit-to-net disposable income ratio came to 159.8 percent in 2017, up 5.2 percentage points on-year, according to BOK‘s preliminary data in March. This came as the rise of household credit, by 8.1 percent, outpaced that of net disposable income of households and nonprofit institutions serving households combined, by 4.5 percent.

Since 2013, the volume of household credit set records every quarter. The pace of increase became steeper in the wake of a policy to ease regulation on an individual‘s upper cap on mortgage loans in 2015 and 2016.

The readings came in spite of the Moon Jae-in administration’s policy effort to tame a ballooning volume of household debt, including a tightened mortgage rule.

The Bank of Korea is at the crossroads as to whether to increase key rates in the upcoming monetary policy board‘s meeting in mid-July. The key rate gap between Korea and the US became the widest in 11 years, after the US Federal Open Market Committee raised the rate by 0.25 percentage point the previous Wednesday.

By Son Ji-hyoung 
(consnow@heraldcorp.com)