An international organization issued a warning that Korea's high levels of household debt could pose a significant threat to the country's economic growth. The Bank for International Settlements (BIS) said in a recent report, "The historical experiences of Korea and more recently China are consistent with such inverted U-shaped relationships, as their GDP growth rates peaked when credit reached just over 100 percent of GDP." Private credit refers to loans provided by banks to businesses and households, excluding those extended to financial institutions. According to BIS standards, Korea's private loan ratio reached 222.7 percent as of last year, with household debt accounting for 100.5 percent and business debt making up 122.3 percent. Korea is projected to follow an inverted U-shaped pattern, where rising debt levels start to negatively impact economic growth, the BIS said. Increased private consumption fueled by borrowed money can boost economic growth in the short term. However, from a medium- to long-t erm perspective, rising credit levels may weaken future growth potential as the burden of debt and interest payments increases. Concerns have been growing over the continued surge in household debt. A report released by the Bank of Korea, Wednesday, revealed that household debt reached 1,130 trillion won ($84.3 billion) at the end of August, an increase of 9.3 trillion won from the previous month. The rapid rise in housing transactions in Seoul and nearby areas drove mortgage loans to a record increase of 8.2 trillion won. Household debt grew last month at the fastest clip in 37 months. In particular, mortgages grew at the fastest pace since the BOK began to tally such statistics in 2004. "Housing transactions increased rapidly in May and June and the effect led to a rise in mortgages several months later," the BOK said. Due to the implementation of the second-phase stressed debt service ratio (DSR), the rise in debt is likely to slow down in September," the BOK added. However, the BOK highlighted several o ngoing risk factors, including continued expectations of rising home prices, increased housing demand ahead of the moving season and the potential for lower interest rates. Despite the alarming signs from rising household debt, policy and financial authorities have largely failed to effectively address the issue. They have faced criticism for inconsistent and conflicting approaches to lender policies. Financial Supervisory Service Chairman Lee Bok-hyun issued an apology for "causing inconvenience and difficulties for the public and the banks," acknowledging that policies should have been better coordinated. Previously, Lee had criticized lenders for raising loan interest rates, which led banks to tighten lending further. As a result, prospective homebuyers have faced increased difficulties in securing loans. Amid lingering disputes, Financial Services Commission Chairman Kim Byoung-hwan made it clear that loan policies should be determined autonomously by banks. It is imperative for the authorities to send consistent messages to the market. Minister of Land, Infrastructure and Transport Park Sang-woo rejected the idea of reducing the share of policy loans, arguing that government-led stimulus measures are not to blame for the soaring housing prices. His stance conflicts with that of the FSC chief, who pointed out the relatively high proportion of policy loans as a concern. This highlights differing views between ministries on how to address the ongoing housing issues. Earlier, President Yoon Suk Yeol emphasized the need to expand financial assistance to young people, aiming to tackle the country's pressing low birthrate and aging population issues, which appears to have influenced the land minister's commitment to loan expansion policies. It is now crucial for the government to further tighten loan policies to prevent housing prices from escalating and to address the growing household debt. The Yoon administration should take note of the previous Moon Jae-in administration's failed real estate policies and av oid repeating those mistakes. Source: Yonhap News Agency