Bank household loans surged to a record high of 100.5 trillion won last year as demand for living funds due to Corona 19 last year, demand for real estate and stock investment funds such as ‘Yong-cheol’ and ‘debt investment’ overlapped. On the 14th, a customer is receiving loan consultation at a bank loan window in Seoul. Reporter Kim Beom-jun [email protected]
It was estimated that households and businesses borrowed new money worth 208 trillion won from banks last year. The debt balance of households and corporations was not only the highest in history, but also the highest in history in terms of the annual increase in borrowings. It was analyzed that households have increased their stock investments and raised their debts due to poor management conditions due to the novel coronavirus infection (Corona 19), and to raise money for homes and jeonse.
According to the’Financial Market Trends for December 2020′ released by the Bank of Korea on the 14th, the balance of household loans and corporate loans at the end of last year was 1965 trillion 200 billion won, an increase of 27.9 trillion won from the end of 2019. Last year’s loan growth was the largest since 2004 when related statistics were prepared. In 2019, it doubled the increase of 105.6 trillion won.
Bank household loans were 98.8 trillion won at the end of last year, an increase of 10 trillion won (11.3%) from the end of 2019. Mortgage loans, which account for the majority of household loans, increased by 68.3 trillion won to 71.9 trillion won. The yearly increase was the largest in five years after regulations such as LTV were eased in 2015 (70 trillion KRW). Credit loans increased by 32.4 trillion won to 266 trillion won, the largest increase in history.
The increase in household debt is the result of’debt investment (investing in debt)’ and’spirituality (attracting the soul)’ to buy stocks and real estate. An official from the BOK said, “There was a great demand for borrowing to raise funds for stock offering stocks, and some households have increased their borrowings to purchase real estate and provide living expenses.”
Business loans from banks increased by 107.4 trillion won to 976 trillion won. The 12.4% increase in corporate borrowing last year is a level that is twice as high as 5.4% in 2019.
Among them, self-employed (individual business owners) loans rose to 386 trillion won, a record high of 47 trillion won. It has been found that self-employed people, who were not making good money due to Corona 19, owed operating funds, including purchase of raw materials, employee salaries, and interest expenses.
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As the total amount of borrowings borrowed by households and companies from banks appeared to be close to 2,000 trillion won as of the end of last year, there is growing concern that excessive debt will adversely affect the real economy. The debt of households and companies is estimated to exceed 4,000 trillion won, including money borrowed from other financial companies such as insurance, securities, cards, savings banks, and capital market financing such as corporate bonds from companies. It is about twice as large as the gross domestic product (GDP). Experts pointed out that such a’heavy debt pile’ can impact the real economy through several routes.
Household/corporate/government debt approaching 5,000 trillion won
The Bank of Korea announced on the 14th that the balances of the bank’s household loans (98.88 trillion won) and corporate loans (97.84 trillion won) as of the end of last year were both 1965 trillion and 200 billion won, an increase of 27.9 trillion won from the end of 2019. It is the largest ever in terms of annual growth.
Considering borrowings from other financial institutions, the size of household and business loans is much larger. Household debt amounted to 1940 trillion won at the end of the third quarter of last year, including loans from insurance, card, and securities companies, and credit card installments and sales credit. It exceeded the nominal GDP level for the first time ever. The ratio of household debt to nominal GDP in the third quarter of last year recorded 101.1%, up 7.4 percentage points over the same period last year.
Total corporate debt, including both bank loans and corporate bond issuances, was 2133 trillion won at the end of the third quarter of last year. Accordingly, the combined household debt and corporate debt amounted to about 4074 trillion won, reaching 211.2% of nominal GDP. Following the end of 2018 (187.4%) and the end of 2019 (197.1%), it exceeded 200% last year.
When the national debt (84.89 trillion won as of the end of 2020) is added to this, the total debt of all domestic economic entities is close to 5,000 trillion won. It exceeds 250% of nominal GDP.
Self-employed man with debt
The surge in household debt last year was largely due to the fact that it raised borrowings from all directions to buy stocks and real estate. First of all, it increased its debt financing to raise the price of a running house. According to KB Real Estate, the average sale price of apartments in Seoul in December of last year was 4,033 million won per 3.3 square meter, up 20.3% (6.68 million won) from December 2019 (3,352 million won). As house prices jumped, household real estate sales also surged.
The demand for funds to buy stock was also high. Individual investors net bought 47,4884 billion won worth of stock in the securities market last year. The public stock market also sucked in the household money. In June and August of last year, in the process of applying for public offerings for SK Biopharm and Kakao Games, margins of KRW 30,988.9 billion and KRW 57,554.3 billion were gathered.
The COVID-19 outbreak has increased the debt of businesses and self-employed people. There has been an increase in demand to raise operating funds, which have become insufficient due to decreased sales, or to store cash in preparation for internal and external uncertainties.
Will private debt become the reef of the real economy?
Experts feared that increased household and corporate debt could act as a ambush for the Korean economy. The Bank for International Settlements (BIS) analyzes that if the ratio of household debt to nominal GDP exceeds 80%, it could negatively affect the economic growth rate. This is because household spending decreases as the burden of repaying loan principal and interest increases.
There is also a great concern that household and corporate debt will become insolvent. Kim Sang-bong, professor of economics at Hansung University, said, “As the government came up with financial support measures right after the Corona 19 incident, the loan delinquency rate for marginalized and vulnerable companies is maintaining a low level. It can be shocking.” In-sil Lee, a professor at the Graduate School of Economics at Sogang University, said, “Financial authorities should carefully examine and regulate the asset bubble and increased debt.”
Reporter Kim Ik-hwan [email protected]