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(ClipartKorea)

South Korea has topped the global household debt ratio list for the fourth consecutive year, exhibiting the highest ratio of household debt-to-GDP among 34 developed countries and emerging-market countries. At the end of last year, South Korea’s household debt amounted to just over 100% of its GDP, a slight decrease from the previous year but still in excess of the nation’s GDP. 

According to data released by the Institute of International Finance, South Korea’s household debt at the end of last year reached 100.1% of its GDP. This is the highest household debt to GDP ratio among the 34 countries analyzed. (The Eurozone is represented as a single statistic.) South Korea was followed by Hong Kong (93.3%), Thailand (91.6%), the UK (78.5%), the US (72.8%), Malaysia (68.9%), and Japan (64.1%). South Korea has topped the list since 2020.  

South Korea’s household debt ratio at the end of 2022 was 104.5%, indicating a decrease of 4.4 percentage points in 2023. This was the second-largest decrease in the debt ratio after the UK (4.6 percentage points). Analysts point to high interest rates leading to a reduction in household loans issued by private financial institutions. 

However, South Korea is the only country in the list to have its GDP exceeded by its household debt. The government and the Bank of Korea have announced mid- to long-term measures to reduce the debt ratio to below 100%, but some are calling for more drastic measures that will have immediate effects.   

South Korea’s household debt ratio is notoriously stubborn. The country’s statistics include credit card expenses as well as small-scale private business debt. But after narrowing the statistics to focus strictly on household loans, the numbers show that the amount of outstanding household debt throughout the country actually increased by 18.4 trillion won (US$13.8 billion) last year. When the Bank of Korea sharply raised the interest rate in August 2021, household loans in 2022 diminished by 7.3 trillion won (US$5.5 billion). But the downward trend quickly reversed in 2023. 

Government policies encouraged the increase in household loans. Outstanding loans for depository institutions (both banks and non-banks) decreased last year, but loans stimulated by the state’s financial policies sharply increased. Housing mortgage loans provided by the National Housing and Urban Fund and the Korea Housing Finance Corporation increased by a whopping 28.8 trillion won (US$21.6 billion)  

Corporate debt is also increasing at a rapid rate. At the end of last year, South Korea’s ratio of corporate debt from non-financial firms to GDP stood at 125.2%, the fourth highest in the list. At the top of the list were Hong Kong (258%), China (166.5%), and Singapore (130.6%). The figure also represented an increase from the previous year of 4.2 percentage points. 

In its 2023 financial stability report, the Bank of Korea stated, “Following the COVID-19 pandemic, loans to non-bank institutes have sharply increased in the real estate and construction industries. The corporate debt ratio is especially high compared to other advanced countries. Any outside or internal shocks could lead to considerable instability and uncertainty.”

By Jun Seul-gi, staff reporter

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