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  • News Center – Springhill Group Home Loans Korea Reviews Growing household debt poses risks to Korean economy | GlobalPost

    Community, Industrial Design

    House-debt_432_

    SEOUL, Aug. 5 (Yonhap) -- South Korea's household debts grew in the second quarter, mainly pushed by the government's moves to bolster the sagging property markets, data showed Monday, spawning concerns that households' capacity to repay debt is worsening.

    Household loans by local banks, including home-backed and credit loans, reached 469.9 trillion won (US$420.1 billion) as of end-June, up 4.8 trillion won from the previous month, according to the Bank of Korea (BOK). Such lending grew a combined 8.27 trillion won in the second quarter.

    The central bank has yet to announce the second-quarter data on Korea's household credit, which refers to credit purchases and loans from financial institutions. The country's household debt totaled 961.6 trillion won as of end-March, the latest official data showed.

    Despite the economic slowdown, household debt is widely on the rise as housing transactions increased ahead of an end-June expiry of the government's tax break for home buying.

    Households' high indebtedness is the main bugbear for Korean policymakers as it is feared to crimp consumer spending, hurting economic growth.

    The BOK said in a semi-annual financial stability report in April that the growth of household debt slowed in 2012, but local households' debt-servicing capacity worsened amid the protracted economic recovery.

    The BOK described the rising difficulty in securing funds facing low-credit borrowers as the "credit divide," saying that a growing number of such people relies on non-banking institutions and private money lenders.

    The average growth rate of the Korean economy reached around 7.3 percent in the 1999-2012 period, lower than the growth rate of household debt with some 11.7 percent. In the cited period, households' disposable income increased an average of 5.7 percent.

    The ratio of household debt against disposable income stood at a record 136 percent as of end-2012, up from 134 percent the previous year, according to the BOK.

    Household debt has yet to surpass the 1,000 trillion won mark when calculated based on household credit. But debt held by Korean households and non-profit agencies amounted to 1,157.1 trillion won as of end-March, according to the central bank.

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