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Household debt rises in 2010

Korea’s household debt, a major economic risk factor, rose sharply last year, raising concerns about an increase in defaults, a private credit appraiser reported Sunday.

At the end of December, financial institutions had 722.8 trillion won ($642 billion) in outstanding loans to the household sector, up 6.9 percent from a year earlier, according to the Korea Credit Bureau.

Of the total, unsecured household loans surged 19.4 percent on-year to 124.1 trillion won, with mortgage loans increasing 9.5 percent to 311.5 trillion won, the data showed.

The increase in household loans comes amid an uptrend in market interest rates, which raises the possibility of more debts turning sour, a bureau official said.

“With interest rates on the uptrend, there is a greater possibility that more households may become insolvent due to greater interest burdens,” he said.

In a monthly policy meeting on Friday, the Bank of Korea froze its benchmark interest rate at 2.75 percent following a quarter-percentage-point increase in January, but it hinted that an interest rate hike is in the cards to counter rising inflation.

Annual inflation reached 4.1 percent in January, prompting the finance ministry to announce a series of measures aimed at curbing price rises.

In early January, the government launched a task force involving financial regulators, government officials, bankers and experts to curb the excessive growth of household loans.

Financial regulators say excessive household loans, if unchecked, could erode economic growth potential or lead to the insolvency of financial institutions and families.

(From news reports)