[Bank of Korea Financial Stability Report] Private Credit at 216.3% of Nominal GDP... Up 15.9%p from Previous Year

"Normalization of Financial Support Measures"... Risk of Insolvency Focused on Vulnerable Households
High Increase in Corporate Debt... Widening Gap in Debt Repayment Ability Among Companies

[Asia Economy Reporter Jang Sehee] It has been revealed that the debt of households and businesses in South Korea exceeds the nominal Gross Domestic Product (GDP). This is due to a significant increase in private debt while the GDP growth rate continues to slow down.

According to the "2021 First Half Financial Stability Report" released by the Bank of Korea on the 22nd, total private credit stood at 216.3% of GDP, rising 15.9 percentage points compared to the same period last year. The debt of the private sector has far surpassed twice the level of GDP.

The ratio of household credit to nominal GDP was 104.7%, exceeding 100%. The ratio of corporate credit to nominal GDP also rose by 6.8 percentage points from the same period last year to 111.6%.

Household debt reached 1,765 trillion won, increasing 9.5% compared to the same period last year, maintaining a high growth rate. Mortgage loans increased by 8.5%, while other loans, mainly credit loans, rose by 10.8%. The increase in household debt has expanded amid the COVID-19 crisis. The household debt growth rate, which was 3.9% in the third quarter of 2019, nearly doubled to 7.0% in the third quarter of 2020.

The Bank of Korea explained that as economic recovery becomes differentiated and financial support measures normalize, attention should be paid to the increased risk of insolvency, especially among vulnerable households.

The ratio of household debt to disposable income was 171.5% in the first quarter, up 11.4 percentage points from the same period last year. This is the result of debt increasing much faster than income. However, the ratio of financial liabilities to financial assets fell by 2.9 percentage points from last year to 44.7%, as assets grew faster than debt.

Corporate debt reached 1,402.2 trillion won, increasing 14.1% compared to the same period last year. Although it has somewhat slowed since the second half of last year, it still remains at a high level. The Bank of Korea explained this as "due to continued funding demand caused by the prolonged COVID-19 pandemic and the impact of financial support measures by policy authorities."

While the corporate debt ratio fell from 81.1% at the end of June 2020 to 77.2% at the end of December, the proportion of companies with a debt ratio exceeding 200% expanded from 12.4% to 15.3%.

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