South Korea’s total debt soars to $2.75tr

Seoul: South Korea’s total public and private-sector debt soared to $2.75 trillion this summer due to greater spending to stimulate growth and growing household borrowing, a report said on Sunday.

As of June, combined debt held by the government, companies and households rose to 2,962 trillion won from 1,966 trillion won in 2007 and 2,859 trillion won at the end of last year, Yonhap news agency said.

The ratio of such debt to nominal gross domestic product was 201.7 per cent in 2007, 231.1 per cent last December and 233.8 per cent at the end of June, it said, citing bank data.

The ratio has been on the rise since the 2008 financial crisis as the government expanded spending to spur growth and low borrowing costs prompted more households to rely on bank lending, Yonhap said.

In June Moody’s Investors Service said the country’s household loans have grown “at an alarming rate” and are vulnerable to financial shocks arising from the global economic downturn.

Many households rely on borrowing to buy a home and pay only the interest every month, repaying the principal when they sell the property.

But a weak property market often means they cannot make enough to repay the principal when the loan falls due.