Regulating Household Debts

The Korean government aims to keep the household debt increase rate by 0.5 to 1 percentage point lower than the current forecast, until the annual increase rate drops to an 8 percent level over the next five years.
The Korean government aims to keep the household debt increase rate by 0.5 to 1 percentage point lower than the current forecast, until the annual increase rate drops to an 8 percent level over the next five years.

 

The South Korean government is to curb the nation’s total amount of household debt hovering at nearly 1.400 quadillion won (US$1.24 trillion). This is because household loans have increased by 129 trillion won (US$114.16 billion) in the past two years, which is more than twice the annual average figure of 60 trillion won (US$53.1 billion) over the past decade. 

The government announced a comprehensive measure to curb the nation’s household debt on October 24. Its goal is to keep the household debt increase rate by 0.5 to 1 percentage point lower than the current forecast, until the annual increase rate drops from the current double-digit level to 8 percent, over the next five years.

In short, the government will lower the household debt rise to the level of the annual average growth rate from 2005 to 2014, except for 2015 and 2016 when household debt showed a sharp rise.

As the government has started regulating the aggregate amount of the nation’s household debt by the guidance through bank windows earlier this year, it expects the figure will have a one-digit growth this year as well. Accordingly, the government believe that the nation’s household debt will stand at 1,450 trillion to 1,460 trillion won (US$1.28 trillion to 1.29 trillion) at the end of this year.

In fact, South Korea’s household debt increase has exceeded its disposable income growth, showing an excessively rapid rise in terms of gross amount. The nation’s household debt-to-disposable income increased by 16 percent points from 163 percent to 179 percent after 2014. As of the end of 2016, its household debt-to-gross domestic product (GDP) stood at 95.6 percent, which was 25.6 percent points higher than the average of 70 percent for the members of the Organization for Economic Co-operation and Development (OECD). 

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution