Ratio of household credit to GNDI rising: BOK


Households’ ability to pay their debts was critically weak during the first quarter as the pace of debt growth surpassed that of income growth.

According to the Bank of Korea, the nation’s household credit, including loans and credit purchasing, reached 801.4 trillion won ($750 billion) at the end of March, up 8.4 percent from a year earlier.

Central bank data also showed that the nation’s gross national disposal income reached 287.6 trillion won in the first quarter, up 7.6 percent from the previous year.

The ratio of household credit to GNDI came in at 2.79, a gauge measuring the level of household indebtedness against disposable income, in the first quarter, higher than 2.76 calculated in the first quarter of 2010.

A higher figure means a worsening capacity of the average household to pay back its debts.

The ratio reached the worst level of 2.83 during the first quarter of 2009 when the country was reeling from the impact of the 2008 global financial crisis.

The data came as snowballing household debts have become a headache for policymakers who fear they could drag down the economy.

The BOK’s gradual hikes of the benchmark interest rate is also putting a burden on households while a delay in the timing of a rate hike also aggravates households’ debt problems by spurring loan demand.

The BOK hiked the key rate to 3.25 percent in June, the third increase this year, in a bid to tame inflation.

Rising inflation is eating into households’ income growth and purchasing power, leading the nation’s domestic demand to grow at a sputtering pace.

According to the BOK, the proportion of mortgage loans to total household lending hit a record high level in the fourth quarter of last year amid the low interest trend in 2009 and 2010.

Home-backed loans extended by local banks reached 284.5 trillion won as of the end of 2010, accounting for 65.9 percent of an outstanding 431.5 trillion won in total household lending.

As part of the government’s countermeasure to curb household debts, the Finance Ministry and the Financial Services Commission are tightening rules on loans for home purchases.

By Kim Yon-se (kys@heraldcorp.com)