Korea’s household debt burden rises at 2nd fastest rate in world

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The household debt burden in Korea is aggravating, with repayment based on one’s annual income increasing at the second fastest pace in the world.

According to data from the Bank for Intentional Settlements (BIS), Monday, Korea’s debt service ratio (DSR) was 13.6 percent last year. This ranked second among the 17 major economies, trailing only Australia at 14.7 percent.

Furthermore, its rate of debt increase, which saw the DSR rise by 0.8 percent compared to 2021, was also the second fastest, again surpassed only by Australia.

The DSR is a measurement of the amount of principal and the interest to be paid by individuals annually in proportion to their yearly salary.

Market watchers have expressed that the BOK’s aggressive monetary tightening has exacerbated the interest burden for households. In 2022 alone, the BOK hiked the policy rate seven times, raising the rate from 1.25 percent to 3.25 percent.

Correspondingly, separate data from the Bank of Korea (BOK) on Monday also showed that Korea’s ratio of household debt to gross domestic product (GDP) is the third highest in the world.

The BOK data showed household debt-to-GDP ratio stood at 105 percent as of 2022, the third highest among the 43 main countries, following Switzerland at 128.3 percent and Australia at 111.8 percent.

A new problem emerging this year is that an increasing number of households are rushing to secure loans as the central bank has frozen the policy rate for the fourth consecutive time this year. As of June, the balance of household loans from deposit banks reached a record-high of 1,062 trillion won.

Source: korea times

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