The Bank of Korea said in a report, released by Yonhap news agency, the ratio of financial debt to disposable household income stood at 1.53 at the end of June. Lower figures indicate better capability to repay debt.

The bank said the ratio had been on the rise, with 1.27 in 2004, 1.35 in 2005, 1.43 in 2006 and 1.48 in 2007.

The report came as increasing debt, coupled with higher inflation, is eroding the purchasing power of households amid the slowing economy and the global financial meltdown.

'Amid rising interest rates, household debt rose faster than income or financial assets, which weakened households' capability to service debt. Such rising debt could sap consumer spending in the future,' the report said.

South Korea's household debt totalled 660.3 trillion won (S$764.2 billion) for the second quarter to June, 3.1 per cent up from the first quarter, according to the central bank.

The total household debt accounts for 73.3 per cent of the country's total gross domestic product, according to the bank.

South Korea last week announced its biggest-ever interest rate cut and pushed budget plans for big tax cuts and spending increases to shield Asia's fourth largest economy from the global financial crisis.

President Lee Myung-Bak said the country will not face a repeat of the 1997-98 financial crisis, but stressed the need to bolster domestic demand to counter sluggish exports amid the global slowdown. -- AFP