Korea's household debt highest in ratio to GDP

By Choi Kyong-ae

Korea posted the highest household debt to GDP ratio among emerging market economies last year, the Bank of International Settlements (BIS) said Tuesday.

Backed by the government’s stimulus packages and record-low interest rate, household debt has soared.

It stood at 84 percent of GDP in 2014, far higher than the average of 30 percent for 14 emerging economies. It was also higher than the average of 73 percent for 26 developed countries.

“Total debt in advanced economies has continued to expand by 36 percentage points of GDP since 2007. Meanwhile, total debt in emerging market economies has risen even more by 50 percentage points,” said a BIS quarterly report released on Sept. 13.

Korea is followed by Malaysia and Thailand both with 69 percent, Hong Kong with 66 percent, Singapore with 61 percent and South Africa with 37 percent, it said.

Korea’s household debt reached 1.13 quadrillion won at the end of June, jumping from 1.09 quadrillion won at the end of 2014, according to the Bank of Korea (BOK).

Economists have expressed concern that record-high household debt could deal a blow to the economy if the U.S. Federal Reserve begins to raise interest rates as early as this month. Higher rates will push up the value of the dollar and investors are expected to exit from emerging markets seeking stable assets, they said.

The government eased regulations to allow potential home buyers to borrow money from banks at lower costs in August last year. The central bank has cut the base rate four times since then.

“But stimulus plans and rate cuts didn’t support growth. Record high household debt remains one of the biggest threats to the economy amid escalating external uncertainties such as U.S. rate hikes and China’s slowdown,” Lee Phil-sang, an economics professor at Seoul National University, said.

The economy expanded just 0.3 percent in the second quarter and inflation has stayed below 1 percent so far this year. The economy grew 3.3 percent last year. In July, the BOK cut its growth outlook for this year to 2.8 percent from its April forecast of 3.1 percent.

Meanwhile, Korea’s government core debt-to-GDP ratio showed the second-biggest rise of 14 percent among the surveyed emerging economies from the end of 2007 to 38 percent at the end of 2014. South Africa showed the biggest jump of 23 percent during the same period.

BIS government core debt (credit to the government) is calculated at market values except for countries where only nominal values are available.

When it comes to the combined debt of the government, companies and households, Korea’s debt-to-GDP ratio was 228 percent, following Hong Kong’s 287 percent, Singapore’s 242 percent and China’s 235 percent, the BIS said.