Private-sector Credit to GDP Ratio Tops 215.5%
The Bank of Korea announced on March 25 that it estimated South Korea’s private-sector credit-to-nominal GDP ratio as of the end of 2020 at 215.5 percent, the ratio is the highest since its records began in 1975, and the ratio increased by an all-time high of 18.4 percent in 2020.
According to the bank, the household credit increased 7.9 percent to 1,726.1 trillion won last year, when the household debt-to-disposable income ratio rose 13.2 percentage points to 175.5 percent and the household credit gap reached an 18-year high of 5.9 percentage points. The gap can be defined as the difference between a normal increase in credit and an actual increase in credit and the figure implies that last year’s credit increase is abnormal.
Besides, the corporate credit increased 10.1 percent to 2,153.5 trillion won last year, showing that companies had to resort to loans in the wake of COVID-19. Although the delinquency rates in the banking and non-banking sectors slightly fell in 2020, the bank expressed concerns over the possibility of a delayed improvement in income conditions leading to a rapid increase in distressed debts and credit risks.
The central bank also announced that no less than 212 trillion won flowed into real estate finance and the total risk exposure in that sector hit an all-time high of 2,279 trillion won last year. The exposure increased more than 7 percent in 2018 and 2019 each and jumped 10.3 percent in 2020 with the government failing to curb a rapid rise in housing prices.
The real estate finance exposure can be defined as the sum of real estate loans and funds invested in real estate investment products. The ratio of the exposure to the nominal GDP increased by a record high of 10.7 percentage points to 118.4 percent last year.
Specifically, households’ real estate loans increased 89.2 trillion won while loans provided for real estate companies increased 45.6 trillion won. The corporate loans from non-banking and banking institutions increased 24.9 trillion won and 20.6 trillion won, respectively.