South Korea's household debt market is vulnerable to financial shocks arising from Europe's debt crisis and China's economic slowdown, the global credit rater Moody's said Tuesday.

"Korean household loans have been growing at an alarming rate. These household loans have characteristics that make them vulnerable to financial shocks and tail risks arising from the European debt crisis and China's economic slowdown," Marie Lam, a senior credit officer at Moody's in Hong Kong, said in a report.

Total outstanding household loans at the country's banks and non-bank depository corporations reached 639.6 trillion won (581 billion U.S. dollars) as of the end of April, up from 622.2 trillion won tallied in July 2011.

The ratio of household debt to disposable income came in at 135 percent in 2011, higher than 114 percent in 2002, when the country's massive lending boom in credit card debt led to the credit card crisis in 2003.

The growth in household lending by depository corporations slowed down substantially since late-2011 as local lenders reduced their lending in response to the financial regulator's measures to limit loan growth.

Non-bank depository corporations increased their loan books quickly at a time when commercial banks tightened their lending, worsening the borrowers'debt-service capabilities. The non-bank institutions usually demand higher lending rate than banks.

According to the Bank of Korea (BOK), borrowers with identical credit ratings need to pay 2.5 times higher interest rates on unsecured loans lent by non-banks than those lent by banks.

The rate of increase in household debt in non-banks suggests that the phenomenon of multiple-borrowers, who have loans from two or more financial institutions, is prevalent, according to the report. Multiple borrowers are viewed as dangerous because borrowers with less credit tend to borrow more from non-bank institutions.

South Korea's household loans have various weak points such as an increase in borrowers who borrow to pay for their living expenses, a rise in loans for the older age groups and a growth in loans for the lower income groups, said Marie.

The analyst noted that the country's low unemployment is not always a cushion against deterioration in loan performance, saying that the proportion of self-employed has been around 23 percent since 2010, which is higher than the OECD average of 16 percent.

The self-employed tend to incur more debt than general households because they do not have a regular income stream. The country's jobless rate has stayed in the range between 3 and 5 percent over the last few years.