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Rising household debt drags economic growth: regulator

The rising pile of household debt is the biggest risk facing South Korea's economy, and it is putting the nation's economic growth at risk, the head of the top financial regulator said Wednesday.

Choi Jong-ku, chairman of the Financial Services Commission, told a forum that the government will unveil a fresh package of measures next month to rein in the growth of household debt. 

Household debt stood at 1,388.3 trillion won ($1.25 trillion) at the end of June, up 10.4 percent from a year earlier, according to the Bank of Korea.

Although there is little risk that household debt may spark a financial crisis, rising debt chokes off private consumption and makes it difficult for the central bank to raise its key rate amid a global monetary tightening. 

A file photo of Financial Services Commission Chairman Choi Jong-ku (Yonhap)
A file photo of Financial Services Commission Chairman Choi Jong-ku (Yonhap)

Choi said the level of debt is hampering the nation's economic growth because it causes money to pour into "unproductive areas." 

The government and banks have been in discussions on how to divert capital to flow into "productive areas" and such measures will be included in the fresh package of measures that will be announced next month.

In its most provocative military action in recent years, North Korea fired an intermediate-range ballistic missile over Japan this week. The North's missile launch rattled global financial markets.

Choi said North Korea's missile launch will have a limited impact on South Korea's real economy because the North's threats have already been factored into the financial markets.

This year, two Internet-only banks were launched in South Korea with the aim of driving innovation and deregulation in the financial industry. It was the first time in 25 years that South Korea granted the two licenses to launch banks.

The FSC plans to consider easing barriers for new players to set up more Internet-only banks.

However, Choi indicated that the FSC would carefully review the qualifications of potential bidders if it grants a new license for more Internet-only banks. (Yonhap)