Korea's household debt-to-GDP ratio highest in world

The Korea Times

The Korea Times

Finance

Sun, October 1, 2023 | 02:16

Economy

Korea's household debt-to-GDP ratio highest among 34 major economies

Posted : 2023-05-29 15:47

Updated : 2023-05-30 14:11

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By Anna J. Park

Korea's household debt-to-gross domestic product (GDP) ratio was the highest among the world's 34 major economies in the first three months of this year, data showed Monday. This has raised concerns that banks and other financial firms may face higher default rates amid higher interest rates and deepening economic warning signs.

According to the latest Global Debt report by the Institute of International Finance (IIF) on Monday, the country's household debt-to-GDP ratio stood at 102.2 percent, topping the list, followed by Hong Kong at 95.1 percent, Thailand at 85.7 percent, U.K. at 81.6 percent and the U.S. at 73 percent. Malaysia, Japan, China, the EU and Singapore also made the top 10 list of countries with the highest indebted households.

Just like last year, Korea is the only country among the 34 surveyed countries of the report that has a level of household debt that exceeded the size of its own GDP.

Still, when compared to the previous year, Korea's household debt-to-GDP ratio has fallen by 3.3 percentage points to 102.2 percent, as of the first quarter, from 105.5 percent in last year's first quarter. This decline is ascribed to deleveraging ― a debtors' attempt to decrease the total financial leverage ― and asset price falls amid high-interest rates.

Korea's corporate debt-to-GDP ratio ― which excludes financial sector debt ― stood at 118.4 percent, as of the first quarter of this year. It is the world's fourth-highest level, following Hong Kong at 269 percent, China at 163.7 percent and Singapore at 126 percent.

Korea's corporate debt-to-GDP ratio rose by 3.1 percentage points from the previous year. Only Vietnam, China and Chile logged higher increase rates than Korea in terms of the corporate debt ratio in the same period. It shows Korea's corporate debt is rising at a faster rate than most other countries.

Furthermore, Korea is one of only 10 countries that posted a rise in its corporate debt ratio among the surveyed countries during the past year, increasing the potential insolvency risk of local companies. The issue of insolvency is likely to be more serious during the second half of this year when special loan support programs that started during the COVID-19 pandemic are to be ended.

With regard to government debt, Korea was ranked 22nd, posting a government debt-to-GDP ratio of 44.1 percent. Japan topped the chart with 239.1 percent, while Singapore and Ghana were the top two countries in terms of increases in their government debt ratios. Korea's government debt ratio fell by 3.2 percentage points to 44.1 percent, from last year's 47.3 percent.

Experts advise the country to pay extra attention and caution in lowering the household debt-to-GDP ratio, as the current level of debt poses potential negative ripple effects, which could hit the real economy in the long term.

annajpark@koreatimes.co.kr