Korea household debt growing alarmingly: Moody’s

Korea’s household loans have grown “at an alarming rate” to $553 billion in April and are vulnerable to financial shocks arising from a global economic downturn, a report said Tuesday.

More people are borrowing just to meet living expenses and there is an increase in borrowers from the older age group and lower income group, said the report from Moody’s Investors Service.

The credit ratings agency said outstanding household loans at the country’s banks and non-banks totalled 639.6 trillion won ($553 billion) at end-April, compared to 622.2 trillion in July 2011.

The debt-to-disposable income ratio was 135 percent last year, higher than 114 percent in 2002, the year before the country’s credit card crisis.

Korean household borrowing had risen by 25 percent since the start of 2009, Moody’s said, compared to a reduction in debt by U.S. households.

The low jobless rate may not provide a cushion against a worsening in loan performance because the self-employed ― making up about a quarter of all workers ― had much higher debt than households in general.

“Therefore, although the performance of the loans is good currently, it is an unreliable indicator of future loan performance because of this structural weakness in the portfolio,” Moody’s said.

The agency said loan repayments could worsen rapidly during a time of economic stress.

But it said it expects Korea’s economy to remain resilient this year, supported by growth of 3-4 percent and a stable banking system. 

(AFP)