"Korean Household Debt Approaches 3,000 Trillion Won When Considering Jeonse Deposits"

Considering the jeonse deposits that are not included in household debt statistics, an analysis revealed that South Korea's household debt last year approached 3,000 trillion won. This makes the household debt-to-economic size ratio the highest among the Organisation for Economic Co-operation and Development (OECD) countries.

On the 6th, the Korea Economic Research Institute (KERI) announced through the analysis titled 'Estimation and Implications of Household Debt Including Jeonse Deposits' that when including jeonse deposits, the scale of household debt in South Korea reaches 2,925.3 trillion won.

KERI stated that household debt including jeonse deposits increased by more than 700 trillion won over the recent five years from 2017 to 2022. Jeonse deposits rose from 770.9 trillion won at the end of 2017 to 1,058.3 trillion won at the end of 2022. Adding financial institution loans and others, total household debt increased by 31.7% during this period, from 2,221.5 trillion won to 2,925.3 trillion won. KERI particularly analyzed that household debt surged significantly during 2020?2021 due to the sharp rise in jeonse deposits following the implementation of the three lease laws and increased loans for living expenses caused by COVID-19.

South Korea's household debt ratio stands at 105.8%, ranking 4th among 31 OECD countries with available statistics. When including jeonse deposits in household debt, South Korea's household debt-to-GDP ratio rises to 156.8%, surpassing Switzerland (131.6%) to become the highest among the 31 OECD countries. Major advanced economies (G5) such as the United Kingdom (86.9%), the United States (76.9%), Japan (67.8%), France (66.8%), and Germany (56.8%) all have household debt-to-GDP ratios below 100%.

Households’ repayment capacity is weak. As of 2021, South Korea's household debt-to-disposable income ratio (disposable income excludes taxes and social security contributions) is 206.5%, ranking 6th among 34 OECD countries with available data. When including jeonse deposits, South Korea's household debt-to-disposable income ratio rises to 303.7%, making household debt more than three times disposable income and ranking 1st among the 34 OECD countries. This contrasts with the United Kingdom (148.4%), France (124.3%), Japan (115.4%), Germany (101.5%), and the United States (101.2%), whose household debt-to-disposable income ratios range between 100% and 150%.

Interest rates are rising, and the increasing proportion of variable-rate loans is also a risk. The share of variable-rate loans in total loan balances, which was 66.8% at the end of 2017, rose by 9.6 percentage points to 76.4% at the end of last year. The proportion of variable-rate loans among new loans also increased by 11.0 percentage points during this period, from 64.3% to 75.3%.

Regarding this, KERI argued that although current policy authorities are strengthening restrictions on fund supply, such as tightening the Debt Service Ratio (DSR) regulations, these measures have limitations in effectiveness because they do not fundamentally reduce loan demand. They cited the example that when DSR regulations expanded last year, other high-interest loans not subject to the regulations increased significantly. Among card loan products, the growth rate of card loans subject to DSR regulations was only 2.3% year-on-year, but revolving credit and cash services, which are outside the regulatory scope, increased by 19.7% and 4.3%, respectively.

Choo Kwang-ho, Director of Economic Policy at KERI, said, “Although the pace of household loan growth has slowed recently due to the real estate market slowdown and increased repayment burdens from high interest rates, the absolute scale of debt is substantial, and the quality level is vulnerable due to the high proportion of variable-rate loans.” He added, “It is necessary to manage loan demand stably through a soft landing of the asset market, while also enhancing household income and financial resilience by promoting regulatory reforms, tax improvements, and creating quality jobs through revitalizing corporate vitality.”

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