By Choi Sung-jin



Indebted households' disposable income increased 13 percent over the past three years but their payment burden of principal and interest surged nearly 60 percent, a Bank of Korea analysis shows.



If the lending rate rises 1 percentage point, it would drive nearly 90,000 more households into marginal situations, the central bank warned.



According to the analysis submitted to Rep. Shim Sang-jeong of the splinter opposition Justice Party, the debt service ratio (DSR) rose sharply from 16.3 percent in 2012 to 23.2 percent last year. DSR is a figure that indicates debt-repaying ability by comparing households' loan principal and interest payments with their disposable income.



This means if the indebted households had spent 163,000 won on repaying debt out of their disposable income of 1 million won in 2012, they spent 232,000 won for the same purpose last year, the BOK analysis said.



That in turn was due to a far faster pace of debt growth than income increase, it said, adding that the disposable income of indebted households increased 13.6 percent but their loan payments soared 59.7 percent.



Particularly, low-income households and self-employed people saw their debts increase more steeply during the period, it said.



The disposable income of the bottom 40 percent of households on the income ladder increased 17.8 percent over the period but their repayment of principal and interest surged 99.2 percent. The DSR of self-employed rose from 21.9 percent to 28.9 percent, meaning they spent nearly 300,000 won on debt repayment out of disposable income of 1 million won. Low-income self-employed people's DSR amounted to 33.8 percent.



The impact of any interest rate increase will also likely be considerable, the BOK said. If the interest rate rises 1 percentage point, the number of marginal households -- families whose debts are larger than their assets and show DSR of 40 percent or higher -- is estimated to increase 88,000, from 1,342,000 to 1,430,000. If nominal per capita income also declines 1 percent, the number of marginal households will rise further to 1,543,000, or 14.4 percent of the total.



"All this shows the urgent need for the government to come up with measures to deal with household debts in preparation for an expected interest rate hike," Rep. Shim said.



