When Loan Interest Rates Rise by 1%p, Interest Burden Increases by 12.5 Trillion Won... "Greater Burden on People in Their 40s"

Interest Repayment Burden on Variable Rate Debt by Household Characteristics

[Asia Economy Reporter Park Sun-mi] As the Bank of Korea's additional base rate hikes are expected to accelerate the rise in household loan interest rates, the additional interest repayment burden on all households is estimated to be about 12.5 trillion won when loan interest rates increase by 1 percentage point.

According to the latest issue of "Economic and Industrial Trends & Issues" published on the 2nd by the National Assembly Budget Office, variable interest rate loans account for 73.5% of household debt in South Korea, raising concerns about an increase in households' interest repayment burdens due to the rate hikes.

Analyst Kim Sang-mi stated, "When loan interest rates rise by 1 percentage point, the additional interest repayment burden on all households will reach about 12.5 trillion won," adding, "Households with heads in their 40s, households in the highest income quintile, and households with regular wage earners will bear the greatest interest repayment burdens." The method for estimating the interest repayment burden applied the same approach used in the data submitted by the Bank of Korea to Representative Yoon Doo-hyun's office in March this year, further incorporating the proportion of variable interest rate debt by age group and household head's occupational status to reflect the increase in interest repayment burden by household characteristics.

Analyst Kim explained, "The total interest repayment burden of about 12.5 trillion won corresponds to approximately 1.05% of the Gross National Income (GNI) of households and non-profit organizations," adding, "By age group, households in their 40s and 50s each see an increase of about 4 trillion won in interest repayment burden, and households in the highest income quintile and those with household heads who are regular wage earners each experience an increase of about 6 trillion won in interest repayment burden."

He said, "If loan interest rates rise due to additional base rate hikes by the Bank of Korea, the increase in households' interest repayment burdens could raise credit risks and negatively affect consumption," adding, "Especially by occupational status, the ratio of interest increase to income is highest for self-employed households, raising concerns that the burden on self-employed individuals, who have faced economic difficulties due to COVID-19, will intensify."

He advised, "It is necessary to conduct close monitoring and devise policy responses to address the increased credit risks and consumption contraction among vulnerable groups and the self-employed due to the interest rate hikes."

This content was produced with the assistance of AI translation services.