The 4th-highest in the OECD
The Korea Insurance Research Institute announced on Nov. 12 that South Korean households’ debt-to-disposable income ratio was 190.6 percent in 2019. “For reference, the ratio was 252.6 percent in Denmark, 232 percent in the Netherlands, 210.1 percent in Australia, 104.1 percent in the United States, 110 percent in Japan and 96.2 percent in Germany,” it explained.
“South Korea’s ratio is the fourth-highest in the OECD, and yet a rise in interest rate is unlikely to lead to South Korean households’ financial instability with strict LTV and DTI regulations in effect,” it said, adding, “Still, the adverse impact of a decline in housing prices on households’ debt repayment capabilities needs to be monitored more closely and borrowers’ repayment capabilities rather than the size of the debt itself should be examined first.”
According to the institute, a rise in interest rate may cause an impact on households and financial markets with housing prices already high and household debts already large. Its advice is to monitor soundness both microeconomically and macroeconomically so that the impact can be prevented.
Immediately before the global financial crisis of 2008, the respective ratios of the United States, the United Kingdom and Ireland were 143.7 percent, 166.8 percent and 231.6 percent, lower than the Netherlands’ 259 percent and Denmark’s 324.6 percent. Still, the financial crisis started in the three countries and this is because their soundness was insufficiently monitored microeconomically and macroeconomically. At that time, the three countries hardly examined borrowers’ repayment capabilities and lots of loans exceeding housing prices were available.