Household debt to Korea’s GDP as of the second quarter of last year 98.6%
Higher than the global average of 63.7% and advanced countries of 75.3%
Liquidity crisis as high as 22.8% of short-term household debt in Korea
Korea’s household debt has approached 100% of gross domestic product (GDP). According to the data of the Korea Institute for Taxation and Finance’s’changes and comparison of total debt by country and debt by sector’ on the 5th, Korea’s household debt to GDP as of the second quarter of last year recorded 98.6%. This is higher than the global average of 63.7% and developed countries’ average of 75.3%.
Since 2008, the ratio of household debt to GDP has increased by 27.6 percentage points, showing an overwhelming gap compared to the global average of 3.7% and the average of developed countries -0.9%. Korea’s household debt accounts for 22.8% of the short-term (one-year) portion. It is significantly higher than that of major European countries such as France (2.3%), Germany (3.2%), Spain (4.5%), Italy (6.5%), and the United Kingdom (11.9%). The high short-term share means that there is a greater likelihood of falling into liquidity risk.
The United States (31.6%) is the only major country with a higher short-term share than Korea. The ratio of financial liabilities to financial assets of Korean households is 47.2% (as of 2019), higher than France (30.0%), UK (28.7%), Germany (28.3%), and the United States (17.3%). Financial liabilities versus financial assets is an indicator of liabilities to assets that can be repaid by securitizing them immediately. The higher the debt risk is, the greater the risk.
Cho Se-yeon believes that the proportion of home mortgage loans among household debt in Korea is 43.9% of GDP (as of 2019), which is similar to that of the United States (49.5%), France (45.4%) and Spain (41.6%). At an absolute level, I did not see Korea’s mortgage-related risks as particularly higher than those of other countries.
He explained that the recent trend of housing loan growth in Korea is the highest level among the surveyed countries. In other words, it is necessary to closely monitor and manage the rate of growth. In the case of Korea, unlike other countries, the fact that the cheonsei system is operated was pointed out as a separate point to be considered.
When recalculating home loans by adding the amount of jeon tax to Korea’s home mortgage loans, the proportion to GDP is 61.2%, which is higher than that of major foreign countries. Cho also pointed out that the scale of other loans (mostly credit loans) excluding home mortgage loans in Korea’s household debt is much higher than that of major countries.
There are many analyzes that behind the increase in loans, various factors such as loans due to deteriorating business environment of small business owners and self-employed persons, loans to raise living funds, stock investments due to lower base rate and increased liquidity supply, etc. will be mixed. It is also possible that a large portion of other loans were used for housing purchases or for jeonse funds.
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