BOK Warns of Post-Pandemic Financial Bubble

  • By Kim Shin-young

    June 23, 2021 11:40

    Korea's finances are at their most unstable since the global financial crisis as a result of record-high household debt and surging apartment prices, the Bank of Korea warned Tuesday.

    The BOK said in a report that the economy could suffer enormously if interest rates rise after the coronavirus pandemic, causing the heavily leveraged real-estate and stock market bubbles to pop.

    Household debt has soared to a record W1.77 quadrillion, while the average price of an apartment in Seoul has surpassed W1.1 billion (US$1=W1,135).

    A visitor takes a picture from an observatory in Seoul on June 13. /Yonhap

    Korea's financial vulnerability index (FVI), which measures risk factors based on asset prices, loans and soundness of financial institutions, has reached 58.9, the highest since the 2008 financial crisis (73.6).

    Any increase in the index shows a higher risk of economic shock. "Looking at the growth of asset prices and debt, the index is likely to rise close to levels seen during the global financial crisis," BOK Deputy Governor Park Jong-seok said.

    Household debt increased by W165 trillion since the end of 2019, just before the pandemic, and is setting new records each quarter as a result of a sharp growth in housing loans and borrowing to invest in stocks.

    If the real-estate bubble bursts, W747 trillion in housing loans, which constitute the biggest portion of household debt, could be at risk. According to the BOK's analysis, the ratio of apartment prices to income soared 13 percent on-year as of the end of 2020, the sharpest growth in the OECD, where the average was four percent.

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