[Economic Outlook] Disclosure of Household and Corporate Debt Surging Due to COVID-19... Discussion on the 3rd Disaster Relief Fund

On the 21st, Decision Likely on Extension of Ssangyong Motor Loan Maturity

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] This week, the scale of household and corporate debt, which surged due to the COVID-19 pandemic this year, will be disclosed. Since the private sector has endured the COVID-19 crisis through borrowing, an evaluation of how the accumulated debt from the pandemic affects the financial stability system is also expected to be released.

As the third wave of COVID-19 shows alarming signs, discussions within the government about the payment of the third disaster relief fund are expected to continue. A decision will also be made on whether to extend the loan maturity for Ssangyong Motor.

The Bank of Korea will release the Financial Stability Report (December 2020) on the 24th and hold a briefing session. Financial stability, along with price stability, is one of the Bank of Korea's two major monetary and credit policy goals. The Bank of Korea's Monetary Policy Committee holds four financial stability meetings annually in March, June, September, and December. As stipulated by the Bank of Korea Act, the financial stability report is submitted to the National Assembly twice a year in June and December, and financial stability status is announced in March and September in the form of data.

According to the Bank of Korea's financial stability report in the first half of the year, as of the end of March, the debt of the private sector, including households and corporations, exceeded twice the size of the gross domestic product (GDP) for the first time. While debt increased, income grew slowly, and the debt-to-disposable income ratio of households (163.1%) was the highest since statistics began being compiled in the first quarter of 2007.

This report is expected to include the status of domestic household and corporate loans since last September and an evaluation of the resulting financial stability situation. Due to low interest rates and hardships caused by COVID-19, as well as cases where all available borrowing was mobilized to invest in asset prices, household and corporate debt is expected to have significantly increased in the second half of the year. As money released to respond to COVID-19 flowed into stocks and real estate, causing asset prices to surge, people continued practices such as Yeongkkeul (borrowing to the limit) and Debt Investment (borrowing to invest).

Since the government announced next year's economic policy direction last week, economic departments plan to prepare implementation measures. The focus is on how to actually achieve the goals of recovering from the COVID-19 crisis and transitioning to a leading economy.

[Image source=Yonhap News]

Discussions on the payment plan for the third disaster relief fund will also be concretized. Since the timing was specified as January next year, discussions on the recipients, scale, and method of payment are expected to proceed in earnest. Self-employed individuals and small business owners, who have been hit by the social distancing level upgrades due to the resurgence of COVID-19, are expected to be the main recipients of the disaster relief fund.

At the same time, the Korea Development Institute (KDI) will release an analysis of the effects of the emergency disaster relief fund on the 23rd. It is expected to review how the first emergency disaster relief fund, which was paid to all citizens, was used and identify areas for improvement.

On the same day, Statistics Korea will announce the population trends for October. Population trends are indicators that show the status of births, deaths, marriages, divorces, and other situations among our citizens. The number of births in the third quarter was 69,000, and the fertility rate was 0.84, marking a record low. Due to the impact of COVID-19 delaying weddings, the number of marriages in the third quarter was also the lowest ever recorded.

Meanwhile, the Korea Development Bank will decide on the 21st whether to extend the loan maturity for Ssangyong Motor. The bank extended the maturity of Ssangyong Motor's loan (90 billion KRW) to the 21st of this month after the company faced a liquidity crisis in July this year. Since the domestic automobile industry is facing a crisis due to COVID-19, it is known that extending the loan maturity once more is a likely option.

The resolution of loan delinquencies by foreign financial institutions such as JP Morgan, BNP Paribas, and Bank of America Merrill Lynch is expected to have a decisive impact on the Korea Development Bank's decision. Ssangyong Motor announced on the 15th that it had defaulted on the repayment of principal and interest amounting to 60 billion KRW on loans from these foreign financial institutions. If the delinquency on foreign financial institution loans is not resolved, there is a possibility that the Korea Development Bank's loan will also become delinquent.

This content was produced with the assistance of AI translation services.