SEOUL, March 24 (Xinhua) -- A warning sign came on for South Korea's massive household debts as the portion of high-risk household debts increased in the past year amid rising expectations for heavier borrowing costs, central bank report showed on Friday.
Debts owed by so-called high-risk households amounted to 62 trillion won (55 billion U.S. dollars), or 7.0 percent of the total, in 2016, according to the Bank of Korea (BOK)'s report on financial stability.
It was up from 5.7 percent, or 46.4 trillion won, of the total tallied in 2015.
The high-risk households refer to those holding more debts than the value of assets, who are incapable of paying back all debts even after selling all assets.
They also have a debt-service ratio above 40 percent. The debt-service ratio indicates the portion of debt-serving burden to total debts. The higher the ratio, the more they are required to repay every month.
The debt-servicing burden by the high-risk households are forecast to grow in the near future as the U.S. Federal Reserve indicated two more rate hikes for the rest of this year after raising its benchmark rate by 25 basis points earlier this month.
While the Fed's rate was raised to a range of 0.75-1.00 percent, the BOK kept its policy rate on hold at an all-time low of 1.25 percent. The BOK cut the rate from 3.25 percent in July 2012 to the current rate in June last year.
Helped by the lower interest rates, South Korean households were encouraged to purchase homes with borrowed money.
Household credit, including debts owed to banks and non-bank lenders as well as purchase on credit, posted the biggest annual growth of 141.2 trillion won, or 11.7 percent, in 2016 to reach a new high of 1,344.3 trillion won (1.2 trillion U.S. dollars) as of end-2016.
