Korea Ranks 3rd Globally in Household Loan Growth Relative to GDP

Low Interest Rate Trend Causes 'Debt Investment'
BIS Data Shows Household Loans at 98.6% of 2Q GDP Last Year
7th Largest in Size, 3rd Fastest Growth Year-on-Year

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] The pace of household loan growth relative to gross domestic product (GDP) in South Korea was the third fastest among 43 major countries worldwide. The size of household loans relative to GDP ranked seventh largest. As the low-interest rate trend continued in response to the impact of the novel coronavirus disease (COVID-19), borrowing cheaply to invest became a widespread behavior. There are concerns that the rapid increase in household debt and the fact that many loans were used for investment could cause significant shocks even with minor market fluctuations.

According to the Bank for International Settlements (BIS) as of the end of the second quarter last year, South Korea's household loan ratio to nominal GDP was 98.6%, ranking seventh among 43 major countries. Countries with a higher household loan-to-GDP ratio than South Korea include Switzerland (129.2%), Australia (121.4%), Denmark (110.8%), Norway (110.0%), Canada (105.7%), and the Netherlands (103.2%).

The problem is that the speed at which South Korea's household loan ratio to GDP is increasing is also steep. South Korea's household loan ratio to nominal GDP grew by 6.0 percentage points compared to the same period a year earlier. This is twice the average increase of major countries (3.0%). Only Hong Kong (9.2 percentage points) and Norway (8.5 percentage points) had faster growth rates than South Korea.

Compared to the end of 2019 (95.2%), just before the COVID-19 outbreak, South Korea's household loan ratio to GDP increased by 3.4 percentage points. Compared to the pre-COVID-19 period, South Korea's household loan ratio to GDP grew at the ninth fastest pace.

Looking at countries with large increases in household loan ratios to GDP during the same period, many are Asian countries. Hong Kong (4.4 percentage points), China (3.9 percentage points), Malaysia (3.7 percentage points), and Thailand (3.6 percentage points) are all ranked within the top 10. Since the second half of last year, Asian stock markets surged, and domestically, the Donghak Ant Movement led to more borrowing for investment. According to the Bank of Korea, household debt reached 1,682.1 trillion won at the end of the third quarter last year, a 7.0% increase compared to the same period the previous year.

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