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An Extraordinary Trend in Debt and Income
Household debt increased while corporate savings jumped last year in Korea.
An Extraordinary Trend in Debt and Income
  • By matthew
  • March 15, 2010, 00:00
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Traditionally, households have saved money for rainy days while companies received loans from banks and invested these loans. However, these days, it is a different story, with Bank of Korea revealing that growth in corporate savings reached a record high in 2009. This rise is thought to be a result of increased profits thanks to high foreign exchange rates and low interest rates last year as well as a reluctance to make new investments due to economic uncertainties.

However, household income stayed weak while household debts increased. Furthermore, corporate saving reached approximately 60% of bank's total savings of banks, its highest-ever level. This means the gap between corporate and house income has widened further.

At the end of 2009, total corporate savings of Korean firms stood at 215,797 trillion won, an increase of 21.3% from 37,743.3 billion won at the end of 2008. Both the size and growth rate are the biggest since 2000. Year by year, the growth and growth rate in 2004 were 4,765 billion won and 2.9%, respectively, 14,247.4 billion won and 10.5% in 2005, 11,764.6 billion won and 7.8% in 2006, 1,183.6 billion won in 2007 and 14,329.1 billion won and 8.8% in 2008, respectively.

Saving deposits rose 22.9%, to 183,434.3 billion won from 149,199.8 billion won in 2008. This growth rate is also the highest since 2000. Furthermore, the growth rate of saving deposits stood at 8.8% in 2006, 0.6% in 2007 and 10.9% in 2008. “Last year, companies strengthened their liquidity thanks to good business performances. Therefore, they increased their savings,” said a financial expert. Meanwhile, total household savings stood at 360,533.8 billion won at the end of last year, a 10.4% increase from a year earlier. In addition, in 2009, the average household income in Korea stood at 41.31 million won, up 1.5% from 40.71 million won in 2008.

However, at the end of 2009, debt per household reached 43.37 million won, up 5.1% from 41.28 million won at the end of 2008. The debt per household minus the average household income leaves 206,000 won, a big rise from 57,000 won in 2008.

The total-household-savings to total-corporate-savings ratio in 2009 stood at 59.7%, the highest ever in history. The ratio was 47.2% in 2005, 50.8% in 2006, 55.1% in 2007 and 54.3% in 2008.

On the other hand, the number of households in which spending exceeded income dropped sharply in 2009. According to government statistics, the number of such deficit households accounted for 28% of all households last year, down 0.6%p from the year before. This number rose to over 30% in 2003 when the credit card crisis hit the Korean economy.