Household and Corporate Debt in Q1 This Year 2.2 Times GDP... Still High

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] Due to the impact of COVID-19 and demand for asset investment, the debt of households and corporations in South Korea continues to amount to 2.2 times the size of the entire economy. In particular, household debt reached 1.7 times the disposable income, indicating that the repayment burden remains significant.

According to the "2022 First Half Financial Stability Report" released by the Bank of Korea on the 22nd, the ratio of private credit (the sum of household and corporate debt in the financial flow statistics) to nominal Gross Domestic Product (GDP) in the first quarter of this year was recorded at 219.4%.

This is a 0.1 percentage point decrease from the fourth quarter of last year (219.5%) but still remains at a high level.

By sector, as of the end of the first quarter of this year, the household credit ratio to GDP was 104.5%, marking a decline for two consecutive quarters, while the corporate credit ratio (114.9%) increased compared to the previous quarter.

Looking solely at household debt (1,859.4 trillion won), it increased by 5.4% year-on-year, showing a slowdown in the growth rate. Strengthened household debt management and rising loan interest rates are interpreted as factors contributing to this slowdown.

The ratio of household debt to disposable income was 168.9% in the first quarter of this year, down 2.2 percentage points from the end of the previous year as the growth rate of household debt slowed.

The ratio of household financial liabilities to financial assets was 45% at the end of the first quarter of this year, slightly down from 45.6% at the end of last year.

The Bank of Korea explained, "As the growth rate of household debt became lower than the income growth rate, the household debt repayment burden has somewhat eased."

On the other hand, corporate credit maintained a high growth rate due to the extension of COVID-19 financial support measures, rising raw material prices, expanded investment in facilities and real estate, and efforts by financial institutions to increase corporate loan handling.

Corporate loans in the first quarter of this year amounted to 1,609 trillion won, a 14.8% increase compared to the same period last year.

At the end of last year, the corporate debt ratio was 80.1%, slightly up from 77.2% at the end of 2020.

The proportion of excessively indebted companies with a debt ratio exceeding 200% decreased from 15.3% at the end of 2020 to 14.6% at the end of last year.

The Bank of Korea stated, "Corporate credit showed a high growth rate due to the extension of COVID-19 financial support measures, rising raw material prices, expanded investment in facilities and real estate, and efforts by financial institutions to increase corporate loan handling," adding, "The financial soundness of companies has rapidly improved thanks to performance recovery."