SEOUL (Reuters) – South Korea’s central bank warned on Thursday that the debt repayment burden among vulnerable households could increase sharply as interest rates rise, underlining the growing negative impact of the debt binge in Asia’s fourth largest economy.

In a report on financial stability, the BOK stated that the ratio of debt to disposable income in South Korean households rose by 10.1 percent from the previous year.

According to the bank, this was due to decrease in household income as a result of social distancing measures that were put into place to combat COVID-19.

South Korea has implemented restrictions, including limiting the hours of cafes and restaurants as well as limiting the number allowed to social events. This is a problem for the hospitality industry.

The report stated that “Funds concentrated in the asset market as well as rapid price rises could be a problem for financial stability, when the market sentiments of economic entities change rapidly due to external or internal shocks.”

In August, the Bank of Korea increased its policy rate 25 basis points to 0.755%. This was the first increase in nearly three years. It also marks the end of the pandemic-era monetary stimulus.

Koreans have borrowed more than ever and policymakers fear that their debt will become too large and could cause a decline in long-term growth and purchasing power.

The report said that a 25-basis point rate hike would have limited impact on interest repayments for both businesses and households.