According to the’Financial Stability Situation (December)’ report released by the Bank of Korea on the 24th, as of the end of the third quarter, the private sector’s debt (household and corporate debt) was calculated as 211.2% of nominal gross domestic product (GDP). Compared to the second quarter (206.9%), it increased by 4.8 percentage points in just three months, the highest level since 1975 when related statistics were started. It jumped a whopping 16.5 percentage points from the third quarter of last year (194.7%) a year ago.
In the case of household debt, at the end of the third quarter, it was KRW 168.2 trillion, a 7% increase from a year ago. Mortgage and other loans (including credit loans) increased by 7.2% and 6.8%, respectively.
Like this, household debt rose rapidly, but disposable income increased only 0.3% over the course of a year, increasing the ratio of household debt to disposable income to 171.3%. It is also the highest since the fourth quarter of 2002, when statistics were written.
The BOK warned, “If the improvement of household income conditions is weak due to delays in economic recovery, etc., it is necessary to pay attention to the possibility that the risk of insolvency will increase, especially for vulnerable households.”
Corporate loans were 133.2 trillion won as of the end of the third quarter, up 15.5% from the third quarter of last year (1153 trillion won).
Even with such a surge in private credit, the BOK evaluated that the bank’s asset quality is still in good shape. As of the end of September, the’under-fixed’ loan ratio of commercial banks was 0.4%, rather than at the same point last year (0.49%).
Looking at the debt repayment ability of borrowers (borrowers), the LTI (debt-to-income ratio) of all borrowers was 225.9% on average at the end of the third quarter, up 8.4 percentage points from the end of last year. The share of borrowers with LTIs exceeding 300% also increased by 1.3 percentage points over the same period.
By age, the LTI was still the highest among those in their 60s or older (250.6%), but the rate of LTI rise was the fastest among those in their 30s and under (221.1%) and in their 40s (229.4%). In both age groups, the LTI rate jumped 14.9 percentage points and 9.9 percentage points, respectively, only this year.
When dividing the LTI according to income level, low-income borrowers (328.4%) have the highest absolute level, as well as the largest jump (15.5% points) compared to the end of last year. It is almost twice the rate of increase of middle-income and high-income borrowers (8.6 percentage points, 7.1 percentage points) during the same period.
The LTI of’vulnerable borrowers’ (246.3%), which means multiple debtors who are low-credit and income groups and who have received loans from three or more locations, also increased by 8.6 percentage points this year. The ratio of principal and interest reimbursement (DSR) for all borrowers to income was 35.7% as of the third quarter, and has been falling since the end of 2018 (39.6%).
The BOK explained, “This is due to a decline in loan interest rates and a prolonged maturity of mortgages.” Kim Ju Ogija [email protected]