The central bank of Korea warned on Thursday that the debt repayment burden on vulnerable households could rise sharply as interest rates rise, highlighting the growing negative impact of the debt binge in Asia's fourth-largest economy.
The ratio of household debt to disposable income in South Korea was 172.4 per cent in the second quarter, up 10.1 percentage points from a year earlier, the central bank said in a periodic report on financial stability.
The bank said the household income of many people had fallen and the ratio of household debt to disposable income had grown worryingly as a result of social distance restrictions in place to combat the COVID-19 epidemic.
It is reported that at present, South Korea has implemented some restrictions, including restrictions on the business hours of cafes and restaurants, and restrictions on the number of social gatherings, which has hurt the hotel industry.
In addition, the report said: "when market sentiment in economic entities changes rapidly as a result of internal or external shocks, the concentration of money in asset markets and the rapid rise in house prices may bode ill for financial stability."
In August, the Bank of Korea raised its benchmark interest rate by 25 basis points to 0.75 per cent, the first increase in nearly three years and the first country in Asia's major central banks to abandon monetary stimulus during the epidemic.
However, the report said that raising interest rates by 25 basis points would have a limited impact on interest repayments by households and businesses.