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S. Koreans spend one-fourth of income on repaying debts: survey

Xinhua, December 20, 2016 Adjust font size:

South Korean households spent over one-fourth of disposable income on repaying debts amid eased regulations on mortgage financing and record-low interest rates that helped lift household debts to the record high, a joint survey showed on Tuesday.

According to the poll of 20,000 households nationwide conducted jointly by Bank of Korea (BOK), Statistics Korea and the Financial Supervisory Service (FSS), household debts averaged 66.55 million won (55,760 U.S. dollars) as of end-March, up 6.4 percent from a year earlier.

It marked the fastest annual increase since 2013. The household debts are composed of financial debts, which account for 70.4 percent, and security deposits home owners receive from tenants, which take up the remaining 29.6 percent.

The rapid expansion in household debts came as the BOK, the country's central bank, lowered its benchmark interest rate from 3.25 percent in July 2014 to an all-time low of 1.25 percent in June this year.

The financial regulator eased regulations on mortgage financing, encouraging households to purchase apartments with borrowed money.

Among the total financial debts, which mean debts from financial institutions, about 40 percent was borrowed to purchase new homes. It was up from 37.9 percent tallied a year ago.

The debt-servicing ratio, which measures the ratio of debt repayments to disposable income, increased 2.6 percentage points from a year earlier to 26.6 percent as of end-March.

It marked the highest since the data began to be compiled in 2012, continuing to rise from 17.2 percent in 2012 to 21.7 percent in 2014.

Debt-servicing burden for households is expected to grow further as the U.S. Federal Reserve raised its key policy rate by 25 basis points this month and heralded the rate hike three times next year.

Higher interest rates in the United States may trigger foreign capital exodus from South Korea as seen in the 1998 foreign exchange crisis, putting pressure on the BOK to raise its benchmark rate in the near future.

Heavier debt-servicing burden, stemming from higher interest rates here, is expected to weigh down on the already sluggish private consumption of the South Korean economy.

Consumer sentiment and business confidence weakened amid global economic slowdown, which reduced profits of South Korean exporters, and the political turmoil caused by the impeachment of President Park Geun-hye. Endit