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2006-09-06 |
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Household Debts Reach New High |
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Household debts reached a new high of 546 trillion won ($550 billion) in the second quarter as demand for housing loans posted stronger growth despite the government’s steps to stem real estate speculation, the central bank said Monday.
The Bank of Korea (BOK) said household debts grew 16.7 trillion won during the April-June period from the previous quarter, the fastest growth pace since the third quarter of 2002, when a credit card bubble was at its peak.
The new figure means each household had 34.4 million won in debt, the largest amount ever, as of the end of June, compared to 33 million won three months earlier.
In the first quarter, household debts grew at a slower pace than previous quarters, affected by anti-speculation measures, but growth momentum gathered pace in the second quarter, the bank said.
As of the end of June, outstanding household debts came to 545.5 trillion won, compared to 529 trillion won three months ago.
Household debts surpassed 500 trillion won in September last year, and have since grown as people borrowed more money to buy new apartments in Seoul and the surrounding areas.
Loans to homebuyers accounted for 53.8 percent of outstanding household debts as of the end of June, the BOK said.
"Households have shown improvement in credit card debt repayments, but they have increased housing loans amid slow growth in disposable incomes," a BOK official said.
"The rise in household debt is expected to help contain private consumption and may negatively affect economic growth."
The rise in mortgages indicates that banks are relying more on interest income from housing loans. As commercial banks have raised interest rates on loans following the central bank’s key interest rate hikes, the interest burden on households has been growing heavier.
Currently, more than 98 percent of aggregate housing loans _ standing at some 250 trillion won _ are tied to a floating interest rate, which changes in accordance with the movement of key interest rates.
The BOK said Korean households will have difficulty in improving their debt payment capability due to rising debts without income growth.
Households’ borrowing has increased over the past years, facilitated by low interest rates to buy houses, and increased credit card spending.
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