![As domestic commercial banks continue to reduce their lending operations due to the surge in household debt, a commercial bank personal loan window in Seoul on the 24th is showing a slump. [김호영 기자]](https://i0.wp.com/file.mk.co.kr/meet/neds/2020/12/image_readtop_2020_1319276_16087996204483827.jpg?w=560&ssl=1)
As domestic commercial banks continue to reduce their lending operations due to the surge in household debt, a commercial bank personal loan window in Seoul on the 24th is showing a slump. [김호영 기자]Lee Jung-min (39, pseudonym), an office worker, recently broke a regular payment and stole 10 million won into a stock account. Lee, who bought my house in the metropolitan area three years ago, loses 800,000 won a month for the principal and interest of a housing loan, but repaying the principal of the loan is unhappy. Mr. Lee said, “I invested in Samsung Electronics at the beginning of the year and made more than 30% profit,” he said. “It is useless to bury money in the installment savings of the 1% interest rate, and if you want to pay off the loan quickly, there is no answer except investing in stocks.” The debt of the three major economic actors, including households, businesses, and government, reached 5,000 trillion won, and Korea became a’debt republic’. Korea’s debt has risen to 2.6 times its nominal gross domestic product (GDP). There is also an analysis that if the asset bubble bursts, 67 trillion won will evaporate, while money is being driven into asset markets such as stocks and real estate with only increasing debt at low interest rates. In particular, debt that has increased rapidly, mainly among the 2030 households and the low-income class, is considered a weak part of the Korean economy.
◆ Increasing debt to income
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According to the Bank of Korea’s Financial Stability Report for the Second Half of 2020, the ratio of household debt to nominal GDP in the third quarter of this year was 101.1%, an increase of 7.4 percentage points from the same period last year. For the first time in history, household debt (1940 trillion won) was larger than the country’s economy (1918 trillion won). Household debt is rising rapidly, but disposable income has increased by only 0.3% in a year. As a result, the ratio of household debt to income rose to 171.3%, the highest since the fourth quarter of 2002 when related statistics were prepared.
The BOK warned, “If the improvement of household income conditions weakens due to delays in economic recovery, etc., there is a possibility that the risk of insolvency will increase, mainly for vulnerable households.” Lee Dong-geun, head of the Hyundai Economic Research Institute, diagnosed, “The ability to repay household debt continues to deteriorate,” and said, “It is necessary to adjust the rate of increase in financial sector loans so that the rate of increase in household debt falls below the rate of increase in nominal income.” The corporate situation is also bad. The behavior of taking a loan and turning it off is clear. The ratio of corporate debt to nominal GDP, which exceeded 100% in the third quarter of last year, rose to 110.1% in the third quarter of this year. The BOK suggested, “In the process of responding to the prolonged Corona 19, corporate credit has increased significantly.”
◆ 2030 do not ask loan `red light`
The 2030 households and low-income households are at the center of the increase in household debt. The debt-to-income ratio (LTI) in the 30s and under has soared from 200.3% to 221.1% in the last year, increasing the steepest among all age groups. On the other hand, the ratio of principal and interest repayment (DSR) to income decreased from 36.1% to 35.6%.
As house prices jumped in the wake of the government’s real estate countermeasures, the surge in demand for out-of-house loans had a direct impact. In addition, it is interpreted that the prevailing influence of the’hantangju’, which collects debt and invests in stocks, also played a part. The BOK said, “There has been an increase in demand for jeon/month and housing purchases among the youth, and the demand for stock investment has increased,” and said, “There are factors such as increased support for non-face-to-face credit loans and monthly rent to cheonsei loans for young people.”
“The asset market is showing signs of a bubble,” said Lee In-ho, chairman of the Korean Economic Association.
It is also uneasy that debt is increasing among the vulnerable. Breaking down the LTI according to income level, the low-income group (328.4%), which is the bottom 30% of their income, recorded 15.5 percentage points, the largest increase in a year. The rate of increase in LTI for the middle-income and high-income people was 8.6 percentage points and 7.1 percentage points, respectively, but it nearly doubled. The LTI (246.3%) of multi-debtors (246.3%) who are low-credit and low-income people who have received loans from three or more locations has increased by 8.6 percentage points this year.
◆ Loss of 67 trillion won when the asset bubble collapses
Households and businesses will suffer an economic blow of 66.8 trillion won if there is a strong shock in which the bubble suddenly disappears while the increased debt flows into the asset market. The BOK predicted this on the premise that the economic growth rate continues to fall below the forecast and asset prices plummet. Specifically, it was assumed that the growth rate of 2021-2023 was only 0-0.9%, which was much retreat than originally expected (2.5-3.0%), and the harsh situation of the KOSPI 1672 and a 0.1% increase in house prices. As a result of the stress test, it was analyzed that the credit loss resulting from the households’ failure to pay off the debt will reach 18.700 trillion won and the corporate credit loss will reach 481 trillion won. Household and corporate loan default rates soar to 1.32% and 2.29%, respectively. The BOK pointed out that “it is necessary to be careful about the possibility of undervaluation of the credit risk of the financial system.”
Director Lee Dong-geun said, “We need to continuously check the possibility of financial institutions operating in areas where housing prices are falling sharply or where employment is deteriorating.”
[김정환 기자 / 김희래 기자]
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