Population aging in South Korea would likely have a negative impact on the country's financial stability as a reduction in productive population ushers in slow growth and low asset prices, a report by the central bank showed Sunday.

According to the report by the Bank of Korea (BOK), the rate of the country's production population aged 15-64 to the total population was estimated to drop to 52.7 percent in 2050 after peaking at 73.1 percent in 2012.

The report's empirical analysis showed the sharp fall in working-age people entails chronic labor shortage and weak labor productivity, leading to a low rate of economic growth and per- capita income expansion. It will result in the weakening of households' debt-servicing capabilities.

The falling productive population makes labor supply scarce relative to capital, driving up wages compared with the rate of return on capital. The marginal product of capital reduces in accordance with the one of labor. As a result, potential economic growth slows unless there are sharp gains in total factor productivity such as innovative technology and labor quality improvement.

The lower rate of return on capital would lessen investment demand, which in turn results in lower real interest rate. The faster fall in lending rates than deposit rates will lead to aggravating profitability of banks, according to the report.

Prices for assets such as real estate and equities would fall sharply amid stronger risk-off sentiment as seen in the cases for the United States in late 2000s and Japan in early 1990s when drop in asset prices caused instabilities in the financial markets, said the report.

South Korea, which became an aging society in 2000, was expected to become an aged society in 2018, before becoming a super-aged society in 2026, according to the United Nation (UN)'s world population prospects. Societies whose proportion of the population aged 65 and over surpasses 7 percent, 14 percent and 20 percent are called aging society, aged society and super-aged society respectively.

The rising portion of the elderly will post a threat to the country's fiscal balance as the aging pushes up costs for senior care, while reducing tax revenue. It would lift the ratio of government debts to GDP, the report said.