For four consecutive years, South Korea has maintained its position as the top country among 34 advanced and emerging markets worldwide in terms of household debt relative to gross domestic product (GDP). As of the end of last year, the ratio stood at 100.1 percent, slightly lower than the previous year, but still significantly surpassing GDP, indicating the continued prominence of household debt in the national economy.
According to the recent “Global Debt Report” released by the Institute of International Finance (IIF) on March 3, South Korea had the highest ratio of household debt to GDP among 34 countries. The eurozone area is represented as a single statistic. As of the end of last year, South Korea’s ratio stood at 100.1 percent. Following South Korea were Hong Kong at 93.3 percent, Thailand at 91.6 percent, the United Kingdom at 78.5 percent, the United States at 72.8 percent, Malaysia at 68.9 percent, and Japan at 64.1 percent. South Korea has maintained its position as the top country for the fourth consecutive year since 2020 in terms of household debt relative to GDP.
South Korea’s household debt ratio saw a slight decrease compared to the previous year, dropping by 4.4 percentage points from 104.5 percent at the end of 2022. The magnitude of this decrease was the second largest among 34 countries, following only the United Kingdom at -4.6 percentage points. The interpretation suggests that the reduction was influenced by a decrease in household lending by private financial institutions due to high interest rates. Among the 34 countries, South Korea remains the only nation with a household debt ratio exceeding 100 percent relative to GDP. While the government and the Bank of Korea plan to manage the household debt ratio within 100 percent of GDP, there are voices advocating for more aggressive reduction measures, labeling it as a “medium to long-term goal.”
In particular, household loan amounts in South Korea have not decreased significantly. When focusing solely on “household loans,” which include credit card usage and debts from small-scale individual businesses, the total household loan balance increased by 18.4 trillion won (US$13.77 billion) over the past year. After the Bank of Korea rapidly increased the benchmark interest rate starting from August 2021, the outstanding balance of household loans decreased by 7.3 trillion won in 2022. However, it resumed an upward trend last year.
Above all, government policies have stimulated household loans. While the outstanding balance of household loans decreased in deposit-taking institutions, which include commercial banks and non-bank institutions, last year government policy-supported household loans increased significantly. Housing mortgage loans provided by the National Housing and Urban Fund and the Korea Housing Finance Corporation alone increased by a total of 28.8 trillion won.
Corporate debt has also been rapidly increasing. As of the end of last year, South Korea’s ratio of non-financial corporate debt to GDP stood at 125.2 percent, ranking fourth highest following Hong Kong at 258.0 percent, China at 166.5 percent, and Singapore at 130. percent. This marked an increase of 4.2 percentage points from the previous year. The Bank of Korea stated in its financial stability report at the end of last year, “Since the outbreak of COVID-19, loans to the real estate and construction sectors have increased significantly, particularly in non-bank institutions, leading to a considerably high corporate debt ratio compared to other major countries. Uncertainties could escalate in the event of domestic and external shocks.”