Debt to Disposable Income
The Korea National Statistical Office announced on December 20 that the ratio of South Korean households’ debt to their disposable income increased from 159.3% to 165.4% between last year and this year.
The ratio adjusted based on international standards amounted to 170% for South Korean households in 2015, ranking sixth among 22 OECD member countries. Denmark reached 284%, followed by the Netherlands (277%), Norway (222%), Sweden (179%) and Canada (175%).
“The data shows that South Korean households are particularly vulnerable to household debts in that North European households are unlikely to become insolvent in spite of a high debt ratio because those countries have robust welfare systems,” said an expert.
In the second quarter of this year, South Korean households’ debt-to-disposable income ratio rose to 174% with the OECD average standing at 126%. The South Korean government has declared to lower the ratio to 155% by the end of next year, but many people are in doubt of it with household income showing no increase due to the ongoing economic recession and an increasing number of people buying houses by taking out loans.
They are under increasing pressure for debt repayment, too. The ratio of principal and interest repayment to disposable income rose from 24% to 26.6% between 2015 and 2016 and this is leading to a decline in consumption. In a recent survey, 70.1% of households answered that they are feeling pressure for debt redemption and 74.5% of them mentioned that they are cutting back on consumption, saving and investment.