Non-financial borrowing by gov't, households surged last year

'Asset value increased faster than debt due to stock, real estate market boom'

By Lee Kyung-min

Non-financial borrowing by the government and households surged last year, and asset prices grew faster than debt, according to government data on Thursday. This was due to the booming stock and real estate markets, amid low borrowing costs enabled by pandemic-induced emergency expansionary policies.

Data jointly released by the Bank of Korea and Statistics Korea on Korea's national balance sheet as of 2020 showed net assets held by households and non-profit organizations stood at 10,420 trillion won ($9 trillion) accounting for 58.8 percent of the total, followed by 4,630 trillion won held by the central and provincial governments (26.2 percent), 2,240 trillion won held by non-financial corporations (12.7 percent) and 417.9 trillion won held by financial corporations (2.4 percent).

Among households and non-profit organizations, almost two-thirds, or 62.2 percent, of assets were held in the form of residential construction buildings and land (42.8 percent) and real estate for non-residential use (19.4 percent). Cash and savings accounted for 15.8 percent, and equity securities and investment funds accounted for a combined 7.9 percent. Insurance and pension assets accounted for the remaining 11.2 percent.

Korea's net national assets increased to 17,720 trillion won in 2020, up 1,090 trillion won, or 6.6 percent from the previous year. This is 9.2 times the country's nominal GDP of 1,930 trillion.

Net financial assets accounting for 2.9 percent of national net assets stood at 507.1 trillion won, as measured by the difference between 19,170 trillion won in financial assets and 18,660 trillion won in financial liabilities.

Of note according to the central bank is that both financial assets and debt held by non-financial entities, households, non-profit organizations and the government combined reported year-on-year increases far faster than their non-financial assets that reported only a 1.2 percentage point year-on-year increase to 7.4 percent, up from 6.2 percent a year earlier. Their assets rose 12.6 percent last year, up from 6.6 percent a year earlier, whereas their debts increased 14.8 percent, up from 6 percent.

The central bank said the across-the-board increase in debt among all economic participants resulted from heavy borrowing.

“Financial debt held by all borrowers soared last year,” a central bank official said.

The financial imbalance ratio measured by financial assets divided by net assets rose to 108.2 percent, up from 103.6 percent in 2019. The figure was 102.4 percent in 2018 and 106.5 in 2017.

Net assets held by households and non-profit organizations rose 11.9 percent, despite their financial debt increasing 9.2 percent last year, up from 5 percent in 2019. This is explained by the value of financial and non-financial assets rising faster than debt, as illustrated by the former rising 13.9 percent last year, up from 6.6 percent, with the latter jumping 10.1 percent, up from 6.5 percent.

The value of non-financial assets ― notably residential buildings and land ― rose to 616.1 trillion won, up from 324.6 trillion won, while financial assets ― notably securities and investment funds ― spiked to 264 trillion won from 47.5 trillion won, year-on-year.

Also driving the increase in net assets was the volume of newly held financial assets surging to 1,440 trillion won last year, up from 973.4 trillion won, due mostly to asset price hikes.

Net assets owned by each household were estimated at 512.2 million won, up 10.6 percent from 462.97 million won in 2019, the highest growth to date.

This translates into about $434,000 per household, lower than the household average in the U.S. ($917,000), Australia ($803,000), Canada ($554,000), France ($468,000) and Japan ($476,000).

But when measured by purchasing power parity (PPP) that excludes factors including poverty, tariffs and other transaction costs, the figure for Korea stood at $594,000, higher than France ($572,000) and Japan ($500,000). It was lower than that held by the average household in the U.S. ($917,000), Australia ($784,000) and Canada ($606,000).

Data from the People's Solidarity for Participatory Democracy released in March showed that the median price of a 99-square-meter apartment in Seoul stood at 1.14 billion won in January, nearly doubling from 640 million won in May 2017.

Record-low borrowing rates enabled many people here to invest in the stock and real estate markets. The benchmark Korea Composite Stock Price Index exceeded the 3,300-mark on June 25 for the first time ever. This came only about six months after surpassing the 3,000-mark. Optimists say the index will soar to a high of 3,700 in the second half of this year.