[THE INVESTOR] Korea has one of the fastest growing levels of household debt as a percentage of gross domestic product among major economies in the world, a Switzerland-based international organization of central banks said Sunday.

Between January and March this year, the ratio of Korea’s household loans to GDP stood at 88.8 percent, up from last year’s 84.3 percent. It was the third-biggest increase among the 42 countries surveyed by the Bank for International Settlements. 

“Korea’s household debt has reached an alarming level,” said Kim Suk-ho, professor of microeconomics at Yonsei University. 

The nation’s household debt-to-GDP ratio ranked No. 8 among countries surveyed, surpassing that of the UK, which is struggling with a housing bubble, according to the BIS.

Also, among 18 developing countries Korea’s ratio topped the list for the 14th consecutive year.

Household loans totaled more than 1.2 quadrillion won ($1.08 trillion) in the second quarter of this year, data from the Bank of Korea showed.

”The government’s attempt to boost the economy on low interest rate policies that encourage people to borrow money is to blame for the ever-growing loans,“ professor Kim said.

Highly indebted households are a major source of concern in Korea, particularly as the US is expected to start raising its interest rates in the coming months, possibly affecting Korea‘s own interest rate policy.

The US Federal Reserve hinted to up its interest rates at the end of the year during the Federal Open Market Committee meeting held on Sept. 21. 
Concerns here are escalating over the possible rate hike, as a 0.25 percentage point increase in interest rate adds more than 2 trillion won of yearly interest costs, according to the BOK.

“Housing bubble is another down side of low interest rate-based policies,” Kim said, noting that “bubbles are destined to burst.”

By Kim Bo-gyung/The Korea Herald (lisakim425@heraldcorp.com)