South Korea’s household debt inflates in August amid low interest rates

Household debt in South Korea rose during the month of August despite the prevalence of low-interest rates and continued efforts by the government to tackle the potential risk that is threatening Asia’s fourth-largest economy.

The balance of household loans extended by local banks amounted to 682.4 trillion won (US$623 billion) as of the end of August, up 8.7 trillion won from a month earlier, data released by the Bank of Korea (BoK) showed Thursday.

Of the aggregate debts, mortgage loans extended by banks rose by 6.2 trillion won to 512.7 trillion won. The country's total household credit jumped 11.1 percent on-year to an all-time high of 1,257.3 trillion won as of end-June amid prolonged low-interest rates and strong demand for new apartments.

Further, the government last month noted that it shall reduce supply of new apartments to control fresh mortgage demand loans. The country’s household debt level is one of the highest in the world, posing potential threats in the near future.

Meanwhile, the BoK slashed its benchmark interest rate to a record low of 1.25 percent in June to help bolster the ailing economy. However, market participants expect the central bank to hold the key rate steady at a record low 1.25 percent for September.