Household Loans Tightened, but Korea's Debt-to-GDP Ratio Still Among OECD's Highest

Household Debt-to-GDP Ratio at 89.0% at End of Last Year
6th Highest Among Major OECD Countries... Pace of Debt Improvement Slows
Financial Authorities: "DSR-Based Management to Remain Strong This Year"

Although the government has been strongly regulating household loans since last year, South Korea's household debt-to-GDP ratio still remains among the highest in the world. The government plans to continue its stringent regulatory stance this year, aiming to further reduce the debt ratio.

Household Debt Ratio at 89.0% at End of Last Year... Pace of Improvement Slows

According to the Financial Services Commission on January 16, South Korea's household debt-to-GDP ratio was estimated at 89.0% as of the end of last year. The ratio stood at 98.7% at the end of 2021, the highest in the world, but as the government began to manage the issue, it fell to 89.6% by the end of 2024.

However, the pace of decline has recently slowed. The ratio dropped by 3.4 percentage points from 93.0% in 2023 to 89.6% in 2024, but between 2024 and 2025, it decreased by only 0.6 percentage points. This slower improvement in household debt is attributed to continued high demand for mortgage loans due to rising housing prices in the Seoul metropolitan area.

In fact, the net increase in mortgage loans across all financial sectors last year was 52.6 trillion won, which is lower than the 58.1 trillion won in 2024, but still remains high compared to 27 trillion won in 2022 and 45.2 trillion won in 2023.

South Korea's household debt-to-GDP ratio remains among the highest globally. According to last year's statistics from the Bank for International Settlements (BIS), among 31 member countries of the Organisation for Economic Co-operation and Development (OECD), South Korea ranked sixth after Switzerland (125.3%), Australia (112.7%), Canada (99.1%), the Netherlands (94.0%), and New Zealand (90.1%).

Household Loan Regulations to Continue This Year... Considering Additional Measures

The government believes that an excessively high household debt-to-GDP ratio can undermine economic growth and financial stability. According to research by the Bank of Korea, if the household credit-to-GDP ratio (accumulated over three years) rises by 1 percentage point, the GDP growth rate (accumulated over three years) falls by 0.25 to 0.28 percentage points with a lag of four to five years.

As household credit increases, the statistical likelihood of an economic recession (annual GDP growth rate turning negative) also rises with a three to five-year lag. Bank of Korea Governor Rhee Changyong has previously assessed that a normal household debt-to-GDP ratio should be around 80%. Financial authorities are also implementing household debt measures with a long-term target of 80%.

The government plans to continue its strong household debt containment policies this year, as housing prices in the Seoul metropolitan area continue to rise and rent prices for both jeonse and wolse are also increasing, heightening public anxiety over housing.

The Financial Services Commission is considering additional loan regulation measures centered on the Debt Service Ratio (DSR) system. Options under review include applying the DSR to policy loans or large jeonse loans for those without homes, and lowering the current DSR cap of 40% for banks. However, specific regulatory measures and the timing of their announcement have not yet been finalized.

Shin Jinchang, Secretary General of the Financial Services Commission, stated, "We will consistently and unwaveringly strengthen management for household debt stabilization this year as well," adding, "Under this strengthened management stance, we will prepare additional measures so that the concentration of funds into real estate is eased and capital can be redirected into productive sectors."