Some indebted Koreans are one rate hike away from trouble

A promotional poster on the wall of a local bank in Seoul on Monday shows the bank's loan rates. Loan rates at banks rose by nearly 0.5 percentage points over the last month and a half.

More than 40 percent of people who took out mortgages in the first quarter have unsecured loans.

According to data from the Bank of Korea, 41.6 percent of those who received mortgages in the first quarter were either already holding unsecured loans or took out fresh unsecured loans.

That percentage is a record high since the central bank started compiling the data in the second quarter of 2012.

The data were in a report released by the office of Rep. Yun Chang-hyun of the opposition People Power Party on Tuesday.

Among all mortgage holders in the first quarter, including those that took out fresh mortgages in that quarter, 43.9 percent have unsecured debt. That percentage is also a record high.

Heavy debtors could weigh on the country's economy, especially as nearly 80 percent of the loans were adjustable interest contracts, meaning payments could rise as interest rates increase. According to data from the central bank, only 19.6 percent of fresh household loans from banks in August were fixed rate.

The central bank has been signaling another interest rate increase, likely this year, as the country's economy recovers and consumer prices rise steeply.

The central bank's monetary policy board raised rates by 25 basis points to 0.75 percent in August. Market analysts are expecting another 25 basis point increase in November at the last rate-setting meeting of the year.

Bank of Korea Gov. Lee Ju-yeol said during a briefing held after the monetary policy board meeting held on Oct. 12 that "there has been a consensus among most members of the board that if the situation does not vary much from what the board has been expecting, that it will be desirable to consider raising rates next month."

According to the financial stability report published by the central bank last month, household interest payments would increase by 2.9 trillion won ($2.5 billion) compared to the end of 2020 if rates are raised 25 basis points this year, and 5.8 trillion won if the increase is 50 basis points.

Loan rates in the market have already been rising fast as financial regulators pressure banks to curb the growth in household debt and on the higher base rate.

Adjustable interest rates as of Monday on mortgages from four major banks in Korea — KB Kookmin Bank, Shinhan Bank, Hana Bank and Woori Bank — were between 3.031 and 4.67 percent, from between 2.62 and 4.19 percent at the end of August.

Rep. Yun said in a statement Tuesday that financial authorities should come up with ways to prevent the economy from falling apart due to heavily indebted households who are holding a number of different loans, as they will be the most vulnerable to interest rate increases.

BYKIMJEE-HEE[kim.jeehee@joongang.co.kr]