SEOUL, June 22 (Reuters) - South Korea’s central bank on Thursday warned that the number of households vulnerable to debt defaults could rise as the debt-servicing capacity comes under strain amid rising interest rates.
In a bi-annual report on financial stability, the Bank of Korea said debt-to-disposable income at South Korean households was at 153.3 percent in the first quarter, up 8.6 percent points from a year earlier.
While the private sector’s overall ability to repay debt was still in “fair condition,” the number of households that could default with rising yields could increase by 60,000 should there be a 1.5 percentage point hike in lending rates.
Currently, about 315,000, or 2.9 percent of households are facing default risks as these homes are categorized as stressed, whose assets may not cover debt repayment and ongoing costs, the central bank said.
South Korean households are facing higher lending rates amid rising interest rates in the United Sates, leaving little cash for discretionary spending as their income gets squeezed by large mortgages and high rental payments in the country’s red-hot property market.
The average mortgage rate was at 3.21 percent in April, the highest in about 2 years and up from 3.13 percent as of December 2016, Bank of Korea data shows.
Reporting by Cynthia Kim; Editing by Shri Navaratnam