Household debts in South Korea posted the biggest-ever annual growth in 2016 due to record-low borrowing costs and eased regulations on mortgage financing, central bank data showed on Tuesday.
The household credit reached 1,344.3 trillion won (1.2 trillion U.S. dollars) as of end-2016, up 141.2 trillion won or 11.7 percent from a year earlier, according to the Bank of Korea (BOK).
The household credit refers to debts owed by households to banks and non-banking financial institutions as well as purchase on credit.
Last year’s growth marked the fastest, surpassing the previous high of 117.8 trillion won tallied in 2015.
In the past two years, household debts surged as the BOK lowered its benchmark interest rate from 3.25 percent in July 2014 to an all-time low of 1.25 percent in June last year.
The government moderated rules on home purchase with borrowed money, driving potential home buyers to the real estate market.
Household debts extended by non-banking institutions grew at a fast speed, boosting worry about heavier debt-servicing burden among low-credit borrowers.
Low-credit borrowers tend to depend on non-banking lenders, which demand higher borrowing costs. As the U.S. Federal Reserve indicated three rate hikes this year, the debt-serving burden is forecast to get increasingly higher.
Debt owed by households to non-banking lenders increased 17.1 percent from a year earlier to 291.3 trillion won as of end-2016. It was the largest annual increase. Enditem