The number of households having trouble paying off their debts due to a lack of income is increasing. (Image : Yonhap)
SEOUL, Feb.10 (Korea Bizwire) – The number of households having trouble paying off their debts due to a lack of income is increasing.
According to data issued by the Bank of Korea (BOK), the number of households with limited financial ability was 1,580,000 in March 2015, which was 14.7 percent of the 10,720,000 households with financial debt.
The numbers are the result of an analysis conducted on 20,000 households by the BOK, Statistics Korea and the Financial Supervisory Service.
Households classified as having limited financial ability are those that have a negative status in net financial assets, as they have more financial debt than financial assets. They also have a debt to income ratio of more than 40 percent.
The number of such households increased by 80,000 in the year from March 2014 to March 2015, while the total number reached 1.5 million (13.8 percent of the total number of households with financial debt).
In 2012, 1.36 million households suffered from limited financial ability, rising to 1.52 million in 2013, but only 10,000 households were studied to compile the data during both years, which was half the size of the sample last year.
The total amount of debt of held by the struggling households in March 2015 was 279 trillion won, which increased by 27 trillion won compared to the previous year (252 trillion).
The share of debt held by limited financial ability households as part of the total financial debt increased from 33.3 percent in 2014 to 34.7 percent last year.
The average amount of debt for financially limited households reached 177 million won, which was a 5.2 percent increase compared to the 168 million won from the previous year. It was also 5.7 times larger than the average of non-limited households (30.8 million).
The average ratio of financial debt compared to the disposable income of limited households was 507.8 percent, which is higher than the 77.8 percent for non-limited households.
Officials from the BOK explain that the increase in the number of limited households shouldn’t directly lead to the deterioration of household debt. Since the number of households paying off their debts by installment increased, the number of limited houses increased.
It was also noted that households with multiple assets such as real estate or households with high income are also included among limited houses.
However, limited households have potential financial risks, as they could have difficulty selling their assets if the market situation changes due to the sluggish economy, a drop in the cost of real estate, or a rise in interest rates.
Multiple debtors who had debt with more than three financial companies, independent business owners and low-income households are particularly at risk.
Officials from the BOK also pointed out that limited households could be very susceptible to financial problems brought on by a rapid increase in interest rates.
By M.H.Lee (mhlee@koreabizwire.com)
