BOK Warns Against Debt Time Bomb

  • By Kim Eun-jung

    January 06, 2021 11:42

    Bank of Korea Governor Lee Ju-yeol on Monday warned that the Korean market could be "heavily shaken by even a small shock" due to heavy fiscal and household debt.

    In a New Year's address to top bankers, Lee said ample liquidity supply and interest rollovers could create risks this year and that the government and banks need to maintain a "high level of vigilance."

    Private spending continues to shrink, while the stock market keeps soaring to abnormal heights. A huge amount of liquidity is flowing into the stock market as ultra-low interest rates lead to mounting housing loans, while fiscal debt could end up becoming impossible to manage, he warned.

    An electronic board at KEB Hana Bank headquarters in Seoul shows the Korea Composite Stock Price Index at 3,027.16 points during intra-day trading on Wednesday. /Yonhap

    On Wednesday morning, the Korea Composite Stock Index surged to 3,027.16 points soon after it opened, surpassing the uncharted 3,000-point level for the first time. The Kosdaq is about to surpass 1,000 points.

    A lot of the money that flowed into the stock market was borrowed. As of the third quarter of last year, Korea's household, corporate and government debt totaled W4.9 quadrillion (US$1=W1,090).

    Household debt outpaced the country's GDP for the first time ever last year as more people borrowed money to tide them over the coronavirus epidemic or rushed to buy homes.

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