Heavy and rising household debt poses a potential risk to South Korea's economy as a sharp rise in defaults could disrupt its financial stability, global credit appraiser Fitch Ratings said Tuesday.

The falling debt level among government and state enterprises is positive for the nation's credit prospects, but a sharp pick-up in defaults among households could wreak havoc on its economy, according to the credit appraiser.

"Korea's sovereign ratings are underpinned by moderate public indebtedness and the economy's still relatively strong macro performance," Fitch said in a report. "High and rising household debt increases Korea's vulnerability to an economic shock, although household assets are also high."

Fitch maintained South Korea's sovereign rating at "AA-," the fourth-highest of its rank, and retained its outlook at "stable."

South Korea's household loans totaled 1,089 trillion won ($977.3 billion) as of end-2014, with mortgage loans accounting for 42 percent of the total, according to the Bank of Korea.

Bulky household debt, triggered by a series of rate cuts by the central bank, has been cited as a chronic bugbear for Asia's fourth-largest economy, in which such debt is feared to sap consumption and possibly trigger a credit risk once interest rates begin trending higher.

Fitch said falling oil prices and weak domestic consumption drove down inflation to below 1 percent through December 2014, well below the BOK's annual inflation target band of 2.5 percent to 3.5 percent.

On Monday, Finance Minister Choi Kyung-hwan said the government is considering a supplementary budget to minimize the negative impact of the Middle East Respiratory Syndrome outbreak on the economy. (Yonhap)