Korean Sundae External Financial Assets Increased, but Short-term External Debt Ratio and Proportion Rose After Three Quarters

Bank of Korea Announces 'Q1 International Investment Position'

South Korea's net external financial assets (external financial assets minus external financial liabilities), which indicate the country's external payment capacity, slightly increased at the end of the first quarter of this year, but the proportion of short-term external debt, which reflects the soundness of external debt, turned upward again after three quarters. The ratio of short-term external debt to foreign exchange reserves also rose back to the 40% range, returning to an increasing trend after three quarters.

According to the "2023 Q1 International Investment Position" released by the Bank of Korea on the 24th, South Korea's net external financial assets at the end of the first quarter of this year amounted to $773 billion, an increase of $1.7 billion compared to the end of the previous quarter. This was mainly due to a larger increase in assets than liabilities, driven by the recovery of the global stock market.

External financial assets increased by $31.7 billion to $2.2004 trillion, while external financial liabilities rose by $30 billion to $1.4274 trillion. External financial assets grew mainly through residents' securities investment and direct investment abroad, while external financial liabilities increased primarily due to foreign securities investment.

Yoo Bok-geun, head of the Overseas Investment Statistics Team at the Bank of Korea's Economic Statistics Bureau, said, "Residents' overseas direct investment among external financial assets increased by $16.2 billion, and securities investment rose by $36.7 billion due to global stock price increases." He added, "During the first quarter, the U.S. Nasdaq stock price rose by 16.8%, while stock prices in the European Union (EU) and Japan increased by 13.7% and 7.5%, respectively."

Net external claims stood at $356.2 billion, down by $0.2 billion from the previous quarter. External claims decreased by $0.5 billion, and external liabilities fell by $0.3 billion.

The "short-term external debt ratio," which is the ratio of short-term external debt to reserve assets indicating external payment capacity, rose by 1.4 percentage points to 40.8% compared to the end of the previous quarter. Despite an increase in reserve assets (the denominator), short-term external debt (the numerator) increased more significantly, turning upward after three quarters. The short-term external debt ratio rose from 38.3% in Q1 last year to 42.3% in Q2, then fell to 41.1% in Q3 and 39.3% in Q4, before rising again in Q1 this year.

The reversal in the short-term external debt ratio was due to short-term external debt increasing by $7.2 billion while reserve assets increased by $2.9 billion. Yoo explained, "Short-term external debt increased mainly due to borrowings by deposit-taking institutions ($8 billion). This was influenced by increased borrowings by foreign bank branches following the U.S. Silicon Valley Bank (SVB) incident and the expansion of arbitrage factors."

Additionally, the "short-term external debt proportion," which shows the share of short-term external debt within total external liabilities and reflects external debt soundness, rose by 1.1 percentage points to 26.1% compared to the end of the previous quarter. This proportion had declined from 27.9% in Q2 last year to 26.8% in Q3 and 25.0% in Q4, before turning upward in Q1 this year.

Yoo noted, "The short-term external debt proportion at the end of Q1 (26.1%) is lower than the long-term average (the past 10 years) of 28.1%. Considering that South Korea holds net external financial assets exceeding 40% of its gross domestic product (GDP) and ranks ninth globally in foreign exchange reserves, the country's external payment capacity and external debt soundness are overall favorable."

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