Financial Assets Accumulated Instead of Debt Repayment... Increased by 1006 Trillion Won During the Pandemic

Accumulated Savings Exceeding 100 Trillion Won Since the Pandemic
"Inflow into the Real Estate Market Negatively Affects Financial Stability"

The Bank of Korea pointed out that during the COVID-19 pandemic, South Korea's financial assets increased by 1,006 trillion won, and if these flowed into asset markets such as real estate along with loans, leading to rising housing prices, it could have a negative impact on financial stability.

On the 24th, the Bank of Korea explained in its ‘BOK Issue Note’ titled ‘Analysis and Evaluation of Household Excess Savings after the Pandemic’ that "South Korean households' financial assets increased by 1,006 trillion won during the pandemic period (2020?2022), mainly in cash, deposits, stocks, and funds, due to accumulated savings." This increase is about twice the 591 trillion won growth recorded in the previous three years.

This expansion of financial assets is influenced by the rise in excess savings. Excess savings here refers to the amount of savings accumulated after the pandemic. The Bank of Korea estimated that “excess savings in the household sector have continuously accumulated after the pandemic, reaching approximately 101 to 129 trillion won,” which corresponds to 4.7 to 6.0% of nominal GDP.

The increase in excess savings was largely contributed by reduced consumption centered on face-to-face services in the early pandemic period (2020?2021), and by income growth last year due to economic recovery, improved employment, wage increases, and government disaster relief payments.

It was found that excess savings were not significantly used for debt repayment. The Bank of Korea explained, “Between 2020 and 2022, both financial assets and liabilities of households increased substantially, suggesting that excess savings are being held as financial assets,” and added, “As export conditions deteriorated and real economic uncertainty increased, households appear to be observing the trend without repaying (debts).”

While the Bank of Korea noted that increased excess savings improve household financial conditions and act as a buffer against negative income shocks, it also pointed out that, together with loans, they provide opportunities to re-enter the housing market, which could lead to rising housing prices and delays in household deleveraging.

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