Korea's persistent large household debt will impede economic growth and challenge financial institutions, S&P Global Ratings said in a Monday release.

Consumer spending remains sluggish amid high debt burden and domestic political uncertainties, S&P said.

Housing market deregulation and lower policy rates could stimulate credit growth, potentially hindering the government's efforts to lower the household debt-to-nominal GDP ratio, S&P credit analyst Daehyun Kim said.

Global tariffs also pose a threat to Korea's economy, with reduced exports and household incomes potentially straining both household portfolios and small and midsize enterprises.

S&P expects banks to remain resilient, but nonbanks face heightened risks, especially from their exposures to the construction and real estate sectors.