[Geuman Report] Household and Corporate Debt 3,343 Trillion Won... Surpasses 219.9% of GDP

"Debt Rising Faster Than Income"… Household Debt to Income Ratio at 174.1% in Cheoneunggadeuk
Major Countries
Increased Risk of Asset Price Adjustment Amid Global Financial Imbalances

[Asia Economy Reporter Jang Sehee] In the third quarter of this year, the debt of households and corporations in South Korea reached 3,342.7 trillion won. Total private credit stood at 219.9% of the Gross Domestic Product (GDP), marking a 9.4 percentage point increase compared to the same period last year.

According to the "December 2021 Financial Stability Report" released by the Bank of Korea on the 23rd, the ratio of household credit to nominal GDP rose by 5.8 percentage points year-on-year to 106.5%, while the corporate credit ratio also increased by 3.6 percentage points to 113.4% compared to the same period last year.

Household debt reached 1,765 trillion won, growing 9.7% year-on-year, maintaining a high growth rate. Mortgage loans increased by 8.8%, while other loans, mainly credit loans, rose by 11.6%.

The ratio of household debt to disposable income was 174.1% in the third quarter, up 8.1 percentage points from the same period last year. This is the result of debt increasing much faster than income growth. The ratio of financial liabilities to financial assets fell by 0.3 percentage points to 45.8% compared to last year, due to a rapid increase in assets such as stock valuations.

Despite loan regulations and interest rate hikes by financial authorities, private credit has increased significantly, raising concerns that future base rate hikes could pose risks to the Korean economy. The Bank of Korea is expected to raise interest rates further at the Monetary Policy Committee meeting in January.

Not only domestically but also in major countries, the pace of monetary policy normalization is likely to accelerate. It was emphasized that if additional global financial imbalances occur, it could lead to asset price adjustments and debt deleveraging in South Korea.

The Bank of Korea stated, "Domestic financial imbalances remain at a high level, and it is necessary to continue policy efforts for their gradual mitigation," adding, "It is also necessary to strengthen monitoring of the degree and speed of accumulation of external financial imbalances, as well as changes in fiscal and monetary policies."

Meanwhile, considering only the domestic financial vulnerability index, the growth rate is projected to be -1.4%. When adding the financial vulnerability indices of major countries, the growth rate is expected to fall to -3.0%. The global financial vulnerability index is a composite index calculated by considering indicators such as private credit and asset prices in major countries including the United States, the United Kingdom, and China.

Professor Andonghyun of Seoul National University’s Department of Economics said, "A GDP growth rate falling to -3.0% would be the largest shock since -5.1% in 1998," adding, "It is a shock so severe that neither the government nor the market would have time to respond."

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