Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Korea's household debt to GDP ratio highest among major economies
A citizen passes by a Hana Bank branch in downtown Seoul. Newsis
By Anna J. Park
By Anna J. Park
Korea's household debt when compared to the size of the economy is found to be the highest among major countries, which will make it more difficult for the government to ease regulations on household loans.
According to the latest “Global Debt” report by the Institute of International Finance (IIF), Korea ranked the highest among 36 major countries in terms of household debt to GDP ratio, as of the end of the first quarter this year.
The country's household debt to GDP ratio stood at 104.3 percent, making Korea the only one among the 36 surveyed countries in which the level of household debt exceeded GDP. Korea was followed by Lebanon whose ratio stood at 97.8 percent, Hong Kong at 95.3 percent, Thailand 89.7 percent, the U.K. at 83.9 percent and the U.S. at 76.1 percent. The household debt to GDP ratio by neighboring countries like China and Japan all stood way below that of Korea, at 62.1 percent for China and 59.7 percent for Japan.
While most countries' household debt to GDP ratios have decreased compared to the previous year, Korea's decrease of 0.7 percentage point from 105 percent last year to 104.3 percent this year is markedly smaller in comparison. The U.K. logged an annual drop of 7.2 percentage points, while the U.S. and Japan saw decreases of 4.7 percentage points and 4.6 percentage points, respectively.
Regarding the corporate debt ratio and its increase rate, Korea logged one of the highest numbers among the surveyed countries.
The ratio of the total debt owed by Korea's non-financial companies compared to GDP stood at 116.8 percent, which is the seventh-highest, following Hong Kong's 281.6 percent, Lebanon's 223.6 percent, Singapore's 163.7 percent, China's 156.6 percent, Vietnam's 140.2 percent and Japan's 118.7 percent. In particular, Korea's corporate debt ratio saw the second-highest rate of increase among the countries.
Yet, in terms of the ratio of government debt to GDP, Korea was ranked 25th out of the 36 countries, as the ratio stood at 44.6 percent. Japan ranked the highest in this category with 248.7 percent.
The IIF's report stated that the size of the total debt ―- combining household, corporate, government and financial sectors ― to GDP stood at 348 percent, which is about 15 percentage points lower than the previous year, and European countries have particularly shown improvements. But the annual report pointed out that countries like Korea, Vietnam and Thailand logged some of the highest rates of increase.
The serious level of the debt burden on the private sector ― household and corporate debts ― is expected to provide a rationale for the Bank of Korea (BOK) to keep raising interest rates. BOK Governor Rhee Chang-yong also said in his inaugural address in late April that one of the central bank's key priorities is a soft landing of the country's debt level.
The burden is also expected to limit the new government's loosening of loan regulations. Market watchers are urging the government to come up with various measures that could tackle household debt risk factors.
“The financial authorities and the financial sector need to be fully prepared for various risk factors, such as the sudden end to currently delayed redemptions of principals for small business owners,” Shyn Yong-sang, research head of financial risk at the Korea Institute of Finance (KIF), pointed out. “Diverse support strategies as well as social programs to help out potentially vulnerable and high-risk business owners, who could fall into a disabled state to repay their debt, should be prepared in advance, in order to lower risk factors.”