The Bank for International Settlements (BIS) announced on December 10 that South Korea’s household debt-to-GDP ratio exceeded 90% to have a negative impact on its economic growth.
According to the BIS, the ratio amounted to 93.8% at the end of the first half of this year whereas it had been 73.7% at the end of the first quarter of 2009. The BIS explained that the ratio is likely to negatively affect South Korea’s long-term economic growth when it exceeds 80%.
The ratio is continuing to rise. It rose by one percentage point in the first half of this year alone. During the same period, the rate of increase was second only to that of China, 2.4 percentage points, among those of 43 countries around the world. South Korea’s household debt-to-GDP ratio increased 1.1 percentage points in 2012, 1.5 percentage points in 2013, 1.9 percentage points in 2014, 3.9 percentage points in 2015, and 4.7 percentage points in 2016. This year, the rate of increase is estimated to be close to that of 2015.
Likewise, South Korea’s debt service ratio continued to increase and recently reached an all-time high of 12.6%. It rose 0.2 percentage points, second only to that of Australia, in the first half of this year alone. According to the BIS, the household debt-to-GDP ratio is particularly high and is continuing to rise in South Korea, Australia, Sweden, Canada and Switzerland.
Under the circumstances, the South Korean government is planning to implement stricter debt-to-income (DTI) regulations next year so that the rate of increase in household debt can be kept below 9% based on less small business and non-banking sector loans. South Korea’s household debt increased by 9.5% from 1.3425 quadrillion won (US$1.2 trillion) between the end of last year and the end of the third quarter of this year.