US and EU Saw Increases in Corporate and Government Loans, but Only Korea Experienced a Surge in Household Loans

Hana Financial Research Institute, Recent Household Debt Characteristics and Future Challenges Report
Domestic Household Debt Growth Rate Faster Than Other Countries
Financial Asset Growth Rate Declines While Financial Liability Growth Rate Rises
Concerns Over New Household Debt Crisis Trigger

[Asia Economy Reporter Park Sun-mi] Amid the rapid increase in debt in major countries due to the impact of the novel coronavirus infection (COVID-19), an analysis has emerged that South Korea's household debt is rising faster than in other countries. Additionally, the proportion of households able to repay their existing debt on time has decreased, raising concerns that household debt could become a new crisis trigger.

On the 22nd, Jeong Hee-soo, a research fellow at Hana Financial Research Institute, revealed this in a report titled "Recent Characteristics of Household Debt and Future Tasks," stating, "The problem with household debt is the speed of increase," and diagnosing that "along with speed control, repayment capacity should be strengthened through income or asset growth."

According to the report, around March, as the COVID-19 pandemic intensified globally, countries proactively expanded global liquidity, resulting in a sharp increase in household, corporate, and government debt.

However, while in most countries such as the United States and the Eurozone, corporate and government debt increased faster than household debt, South Korea showed a higher rate of increase in household debt compared to other countries.

In fact, in the United States, the household debt-to-GDP ratio increased by 1.7 percentage points during the first half of this year, whereas corporate and government debt ratios rose by 7.8 percentage points and 23.0 percentage points, respectively.

In contrast, South Korea's household debt ratio reached 98.6% of GDP during the same period, raising concerns. Corporate debt also stood at 108.3%, 9.5 percentage points higher than the advanced countries' average.

Proportion Able to Repay on Time Decreases
Concerns Over Household Debt as a New Crisis Trigger

Despite the government's strong regulatory measures, household debt has been rapidly increasing since the third quarter of this year. According to the report, as of the end of September, the scale of household debt was 1,682 trillion won, an increase of 82 trillion won this year alone. This significantly exceeds last year's annual increase of 64 trillion won.

Researcher Jeong analyzed, "This is due to the significant expansion of policy support funds amid COVID-19 and the intensified concentration on jeonse (key money deposit) loans and credit loans following strengthened regulations on mortgage loans."

The problem is that the debt scale is growing and timely repayment may become difficult. According to the recently released Household Financial Welfare Survey, the growth rate of financial assets fell from 2.2% last year to -0.6% as of June this year, while the growth rate of financial liabilities rose from 3.9% to 5.1%. Additionally, the proportion of respondents expecting their debt to increase over the next year has risen, and the proportion who believe they can repay their existing debt on time has decreased.

Researcher Jeong advised, "If household debt leads to defaults, the asset soundness of banks could deteriorate, potentially causing instability in the financial system," and recommended, "The banking sector should be guided to curb the rapid increase in household debt by autonomously managing credit loans and strengthening borrower repayment capacity assessments, especially for high-value credit loans."

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