Household debt in South Korea is rising at its fastest pace in seven years, driven by government efforts to help prop up the economy.
Outstanding household debt grew between 7% and 10% year-on-year in recent months, according to a South Korean government official.
That’s the quickest clip since the end of 2007, when debt grew at close to 10%. South Korea’s central bank, which has cut interest rates twice recently amid slower growth, may do so again early in 2014, economists say.
That could risk pushing up debt further, although South Korea can use measures restricting banks’ lending if they deem debt is getting too high, the official said.
Debt also has risen following a decision by President Park Geun-hye’s administration in the summer to increase the maximum amount that South Koreans can borrow to buy a house. Household debt is a thorny issue in South Korea.
At the end of 2012, total household borrowings were 136% of disposable income, about the same level as in the U.S. in 2007, before its financial crisis. Debt has more than doubled over the past decade to over 1,000 trillion won ($897 billion) at the end of June, which was up 6.2% on year, and has increased further since then.
South Korea’s government says the situation is under control. The delinquency ratio on household loans was only 0.65% at the end of June, a reflection of strict mortgage-lending regulations.
Ms. Park’s administration is keen to give a hand to domestic demand at a time when South Korea’s exports, its traditional economic driver, have remained weak due to poor global conditions.
One aim of allowing easier lending rules it to jump start a stagnant property market. Some economists say that earlier limits on property lending were too restrictive given the low delinquency rates. Maximum loan-to-value ratios are now 70% versus a previous maximum of 60%.
But household debt is growing much faster than the nation’s gross domestic product, which economists expect to expand by around 3.5% in 2014.
The country has had problems with debt in the past. Its big companies borrowed heavily in foreign currencies in the 1990s, leading to mass defaults during the 1997-98 Asian financial crisis.
Looking for new clients, South Korean banks then lent heavily to households. That led to a bubble in credit card borrowing that popped over a decade ago. Regulators brought in loan-to-value ratios and other measures to stem the pace of lending.
These began to bite in 2007, slowing credit expansion. Now, the question is how much credit will expand again this time around.
wsj.com
Outstanding household debt grew between 7% and 10% year-on-year in recent months, according to a South Korean government official.
That’s the quickest clip since the end of 2007, when debt grew at close to 10%. South Korea’s central bank, which has cut interest rates twice recently amid slower growth, may do so again early in 2014, economists say.
That could risk pushing up debt further, although South Korea can use measures restricting banks’ lending if they deem debt is getting too high, the official said.
Debt also has risen following a decision by President Park Geun-hye’s administration in the summer to increase the maximum amount that South Koreans can borrow to buy a house. Household debt is a thorny issue in South Korea.
At the end of 2012, total household borrowings were 136% of disposable income, about the same level as in the U.S. in 2007, before its financial crisis. Debt has more than doubled over the past decade to over 1,000 trillion won ($897 billion) at the end of June, which was up 6.2% on year, and has increased further since then.
South Korea’s government says the situation is under control. The delinquency ratio on household loans was only 0.65% at the end of June, a reflection of strict mortgage-lending regulations.
Ms. Park’s administration is keen to give a hand to domestic demand at a time when South Korea’s exports, its traditional economic driver, have remained weak due to poor global conditions.
One aim of allowing easier lending rules it to jump start a stagnant property market. Some economists say that earlier limits on property lending were too restrictive given the low delinquency rates. Maximum loan-to-value ratios are now 70% versus a previous maximum of 60%.
But household debt is growing much faster than the nation’s gross domestic product, which economists expect to expand by around 3.5% in 2014.
The country has had problems with debt in the past. Its big companies borrowed heavily in foreign currencies in the 1990s, leading to mass defaults during the 1997-98 Asian financial crisis.
Looking for new clients, South Korean banks then lent heavily to households. That led to a bubble in credit card borrowing that popped over a decade ago. Regulators brought in loan-to-value ratios and other measures to stem the pace of lending.
These began to bite in 2007, slowing credit expansion. Now, the question is how much credit will expand again this time around.
wsj.com
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