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It was found that the rate of increase in Korean household debt was faster than in other countries. In particular, while advanced economies were reducing household debt, Korea alone increased its debt significantly. Some point out that the absolute size of the debt is large and the quality is poor, so it is vulnerable to a liquidity crisis.
According to the’Comparison of Changes in Total Debt by Country and Debt by Sector’, published in the March issue of the recent fiscal forum published by the Institute for Taxation and Finance, Korea’s household debt compared to GDP in the second quarter of last year was 98.6%. This is higher than the global average of 63.7% and the advanced countries average of 75.3%.
The trend since the 2008 global financial crisis is even more serious. Korea’s household debt ratio increased by 27.6 percentage points for about 12 years until the second quarter of last year. During the same period, the debt-to-equity ratio of developed countries decreased by 0.9 percentage points. The global average only increased by 3.7 percentage points.
The quality of the debt is also bad. It was found that the short-term (one-year) share of Korean household debt accounts for 22.8%. 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 United States (31.6%) is the only major country with a higher short-term share than Korea. In his report, Jo Se-yeon pointed out that it is vulnerable to liquidity risks.
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.
Jo Se-yeon pointed out that the trend of increasing home mortgage loans is rapid when looking at household debt in Korea in detail. Considering that there is a special transaction called jeon tax, the proportion of housing loans would be higher than that of overseas. Other loans such as credit loans are higher than in major countries, and some pointed out that this can also be used for home purchases. This is because the proportion of other loans has increased rapidly recently.
Jo Se-yeon warned, “At the present time when the size of debt has increased significantly, a sharp increase in the interest rate may lead to a shock to the entire economy, such as a significant increase in the interest expense caused by the debt burden.”
Reporter Kang Jin-kyu [email protected]
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