SEOUL Dec 27 South Korea's central bank on
Tuesday warned that the debt-servicing capacity of some of the
country's most vulnerable households could fall on the back of a
delay in economic recovery and rising interest rates.
In a bi-annual report on financial stability, the Bank of
Korea said although households' overall debt repayment capacity
appears solid, those in low-income basket and in low-credit
groups face default risks given that debt accumulation has far
outpaced disposable income growth.
"Those people (categorised as vulnerable households) would
feel a bigger debt repayment burden than other households when
the interest rates increase, as many of them have variable-rate
loans, and often more than one," Byun Seung-sik, head of
Financial Stability Department at the BOK said.
"They (the number of vulnerable households) are on the
Household debt stood at 1,295.8 trillion won ($1.08
trillion) at the end of the third quarter this year, up 11.2
percent from a year earlier.
The bank said about 6.4 percent of borrowers, representing
78.6 trillion won of total debt, will see their debt repayment
capacity fall when interest rates increase.
South Korean households are bracing for higher loan rates as
local yields track U.S. interest rates, which are expected to
rise in 2017. The U.S. Federal Reserve earlier this month raised
short-term interest rates by a quarter of a percentage point and
signaled a quicker pace of monetary policy tightening for the
year ahead, triggering bond yield spikes in emerging economies.
The household debt-to-disposable income ratio was at 151.1
percent at the end of the third quarter, having risen 7.4
percentage points from the end of 2015.
(Reporting by Cynthia Kim; Editing by Sam Holmes)