Household Debt Grows Faster than Household Income
The ratio of household debt to nominal gross domestic product (GDP) rose to 86.1 percent in 2018 as the rate of household debt growth exceeded that of income growth. Yet the pace of household debt growth slowed down.
The total debts of vulnerable borrowers which had a lower income and a lower credit rating stood at 86.80 trillion won (US$76.40 billion), up 4.10 trillion won (US$3.61 billion) from a year earlier.
The amount of household debt grew 5.8 percent on-year to 1,534.60 trillion won (US$1.35 trillion) at the end of last year, according to a financial safety report released by the Bank of Korea on March 28. The growth rate slid to a 6-year low since 2013. However, the ratio of household debt to disposable income increased from 159.8 percent at the end of 2017 to an estimate of 162.7 percent at the end of 2018. The ratio of household debt to nominal GDP rose from 83.8 percent at the end of 2017 to 86.1 percent at the end of 2018.
The loan to income (LTI) ratio of debtors is continuously on the rise, reaching 217.7 percent as of the end of 2018. For LTI’s distribution by section, the ratio of borrowers with over 300 percent of LTI which had a much greater burden of debt to income slightly grew from 21.1 percent to 21.9 percent.
Notably, the amount of liabilities of vulnerable debtors which had multiple loans as well as were in in the bottom 30 percent bracket or had a low credit rating between the 7 to 10 grades showed a steady growth since 2015. The figure came to 86.80 trillion won (US$76.42 billion) as of the end of 2018, up 4.10 trillion won (US$3.61 billion) from a year ago. It also grew faster mainly in debts of multiple debtor and lower income earners.
The number of borrowers accounted for 7.7 percent of the total household debtors. The ratio of non-bank financial institutions took up 64.8 percent of the total liabilities of vulnerable borrowers. By sector, mutual savings and finance services providers ranked first with 25.2 percent, followed by financial companies specializing in loan business with 15.9 percent and financing loan business operators with 8.5 percent.