SEOUL, Sept. 27 (Korea Bizwire) – A growing number of South Korean households face the risk of defaulting on their debts, a potential “time bomb” for Asia’s fourth-largest economy, a lawmaker said Tuesday.
The number of “marginal” households came to 1.34 million as of March last year, a sharp increase from 1.12 million three years earlier, according to Rep. Lee Un-ju of the main opposition Minjoo Party of Korea.
Their combined debts totaled 234.5 trillion won (US$210 billion).
Marginal households refer to families with more financial liabilities than their financial assets, with their debt service burden exceeding 40 percent of the disposable income.
Lee released the data ahead of the annual parliamentary audit of the finance ministry’s work.
“It’s important to take measures to support those marginal households,” she said.
Households here are also increasingly over-indebted. The number of households in danger of going bankrupt came to 1.11 million with 161.8 trillion won of total debts as of March 2015, added Lee.
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 unrelenting demand for new apartments, according to official data.
Market watchers describe it as one of the biggest problems facing South Korea’s economy, while many agree that chances are low that it will trigger an immediate major economic crisis.
In August, the government announced another package of measures to curb mortgage-backed borrowing, including the control of new apartment supply.
But skepticism has been spreading over the effectiveness of the policy with housing prices continuing to rise.