As of September 2021, households and businesses have more than doubled the size of the economy.
According to the Financial Stability Report for the second half of the year released by the Bank of Korea today, as of the end of September, private credit, including household debt and corporate debt, reached 219.9% of nominal GDP. Not only is it the highest since the statistics began in 1975, but it also increased by 9.4 percentage points compared to the end of September last year.
As of the end of September, the balance of household debt stood at KRW 1,844.9 trillion, an increase of 9.7% in one year, more than double the KRW 843 trillion at the end of 2010, right after the global financial crisis. Corporate loans amounted to KRW 1497.8 trillion, an increase of 12.4% in just one year, continuing a high growth trend. The Bank of Korea cited the re-spreading of COVID-19 and rising international commodity prices as reasons.
![[알려줘! 경제] 'I live on debt' Debt is 2.2 times the size of the entire economy](https://i0.wp.com/image.imnews.imbc.com/news/2021/econo/article/__icsFiles/afieldfile/2021/12/23/gh211223-13.jpg?w=800&ssl=1)
Ratio of private credit to nominal GDP, etc. [한국은행 제공]
As of the end of September, the debt of the self-employed who suffered the most from the COVID-19 crisis was 887.5 trillion won. It increased by 14.2% in one year. The rate of increase in self-employed debt is faster than the rate of increase in total household loans. If you calculate the loan amount per person, the average loan amount is 350 million won. This is about 4 times the average loan amount for non-business owners (90 million won).
The quality of debt is getting worse. The bank loan balance of the self-employed is 578.1 trillion won. The rest (309.5 trillion won) was borrowed from non-banks. Non-banking is a channel through which people with low credit scores borrow money at high interest rates. The growth rate of non-bank loans was 19.8% compared to 11.3% in bank loans, so it is interpreted that self-employed people who borrowed enough from banks and met their limits are turning their eyes to non-banking ones.
Debt is at an all-time high and the impact of COVID-19 is strong, but the loan delinquency rate is only 0.19%. Does that mean the economy is good enough to pay off debt? It’s not like that. The delinquency rate is expressed as a ‘lagging indicator’, and when the economy slows, the delinquency rate rises with a slight time lag. In addition, the proportion of real estate-secured loans among self-employed loans reaches 70%, which means that the delinquency rate is affected by real estate prices. The delinquency rate was also affected by the financial authorities temporarily extending the maturity of loans to small business owners and deferring the repayment of principal and interest.
![[알려줘! 경제] 'I live on debt' Debt is 2.2 times the size of the entire economy](https://i0.wp.com/image.imnews.imbc.com/news/2021/econo/article/__icsFiles/afieldfile/2021/12/23/gh211223-8.jpg?w=800&ssl=1)
Household debt is growing much faster than income is growing. When this financial imbalance worsens, each household hesitates to consume and business investment is also reduced. The Bank of Korea analyzed the threshold at which debt begins to constrain consumption as 45.9% based on the total debt repayment ratio (DSR). . Fortunately, the average DSR at the end of March was 36.1%, which is not yet constricting consumption, but it is only an average. The number of ‘high-risk households’ with a DSR of over 40% and debts greater than assets has risen significantly from 300,000 at the end of 2018 to 400,000 at the end of 2020.
The proportion of real assets to total household wealth in Korea is 64%, much higher than that of the US (29%) and Japan (38%). This means that assets are heavily tied to real estate sales or deposits, and financial assets occupy a small proportion. Considering this situation, the Bank of Korea predicted that if the real income of households declines significantly, there is a possibility that housing price adjustments may follow as they begin to secure liquidity through asset sales, that is, real estate sales.
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