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An IMF working paper reported a 3-percentage point increase in interest rates could boost Korean household debt by up to 17 percentage points. The paper suggested that, in this case, the average Korean household will have to spend about half of its disposable income on repaying principal and interest.
According to the paper, titled ¡°Stress Testing Household Debt in Korea,¡± released by the IMF earlier this month, "Korea¡¯s household debt has reached 148 percent of its disposable income, which is high by emerging market standards."
Korean household debt is higher than in the U.S. and Japan, the paper reported. ¡°Korean households are especially vulnerable to interest rate shock, considering that 91.7 percent of housing mortgage loans (as of the end of 2007) are based on variable interest rates.¡±
The working paper suggests that a 1-3 percentage point increase in interest rates could increase distressed Korean household debt by 8.5-17 percentage points. A drop of 10-30 percent in real estate prices could add another 4-5 percentage points to the debt, the paper predicts.
(englishnews@chosun.com )
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