South Korea's household debts are currently manageable as its pace of growth slowed recently, but efforts to curb further expansion of debts are needed as the debts stayed at a high level, the country's financial regulator said Thursday.

According to the Financial Services Commission (FSC), South Korea's household debts grew at an average annual rate of 11.7 percent for two years through 2010, much faster than 7.3 percent growth for gross domestic product (GDP) and 5.7 percent rise for disposable income.

Debt structure was vulnerable to shocks as 94.9 percent of household debts were composed of floating-rate loans as of 2010, higher than 10 percent for the United States and Germany. Bullet payment loans, which demand the repayment of all principal at maturity, accounted for 41.3 percent of total household loans in 2010, higher than 9.7 percent for the U.S. and 7.5 percent for the European Union (EU).

Households' capability to service debts worsened. Delinquency ratio of household debts continued to rise to 0.97 percent as of end-May, the highest since 1.07 percent tallied in June 2010.

However, the FSC assessed that household debts were manageable as of now as the pace of debt growth slowed since the second half of last year. Outstanding household debts stood at 911.4 trillion won (800.67 billion U.S. dollars) as of the end of March, down 0.5 trillion won from three months before. It was the first decline in three years.

The regulator noted that loss-absorbing ability of financial institutions were solid as their net profits were large enough to absorb loan-related losses, saying that a rise in the delinquency ratio was relatively slow compared with before. It added that high- income earners borrowed more money in size than low-income ones.

The FSC introduced comprehensive countermeasures against excessive household debts in the banking sector last June, but tighter rules on banks triggered the so-called balloon effect, which moved loan demand from banks to non-bank financial institutions that demand higher lending rates.

As a follow-up measure, the FSC adopted measures in late February to curb non-bank institutions' lending to households. Paradoxically, the measures were feared to push the loan demand into other money lenders that demand much higher lending rates.