Concerns Rise as South Korean Household Debt Closes to GDP

South Korean household debt has soared to nearly 100% of the country’s gross domestic product, raising fears that central bank rate hikes could weigh heavily on the household sector, according to a report released on Monday.

The ratio of Korean household debt to its GDP – the market value of all final goods and services produced in an economy over a certain period – stood at 98.6% at the end of the month. June of last year, according to the Korea Institute report. of Public Finances.

The household debt level of Asia’s fourth-largest economy exceeded the global average by 63.7 percent and the advanced-country average by 75.3 percent, according to the report.

In addition, Korean household debt figures have grown at a much faster rate than those of its foreign counterparts.

The latter figure represents a gain of 27.6 percentage points compared to 2008. In contrast, between 2008 and 2020, the world average gained 3.7 percentage points and advanced countries recorded an average decline of 0, 9 percentage point, according to data.

In addition, Korean households were more dependent on short-term loans than households in other major economies. Of the country’s total household debt, short-term debt represented 22.8%, far more than the corresponding figures of 2.3% for France, 3.2% for Germany, 4.5% for France. ‘Spain and 11.9% for Great Britain. The United States was the exception, with a short-term debt ratio of 31.6%.

Korean household debt is on the rise as people increasingly borrow money from financial institutions to buy apartments or invest in stocks in a prolonged low interest rate environment.

The Bank of Korea cut the benchmark interest rate to an all-time low of 0.5% in May of last year after an emergency rate cut to 0.75% in the previous March. This was done to inject liquidity into banks, businesses and households affected by the COVID-19 pandemic.

Due to the abundance of liquidity, the total value of all financial loans and credit card payment services offered to households reached an all-time high of 1,726 trillion won ($ 1.53 trillion) in December, according to BOK data.

The research institute also noted that a sharp hike in the benchmark interest rate against a backdrop of rapidly growing debt could trigger household debt, which could have adverse consequences for the real economy.

Meanwhile, BOK Governor Lee Ju-yeol earlier said “it is premature to change the current monetary easing policy due to continued economic uncertainty amid the protracted COVID pandemic. -19 ”.

By Choi Jae-hee ([email protected])

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