Korea’s Household Debt And Growth: Ranking Among Global Economies

(CTN NEWS) – Korea is ranked as the second-largest economy globally in terms of household debt and its rate of expansion.

According to the Bank for International Settlements, Korea’s household debt service ratio (DSR), which measures the proportion of debt to income, reached 13.6 percent last year.

Korea’s Household Debt Service Ratio (DSR) Compared to Other Major Economies

Among the world’s 17 largest economies, this places Korea in second position, just behind Australia’s 14.7 percent.

Korea’s DSR is nearly twice as high as that of the United States at 7.6 percent and Japan’s 7.5 percent, and it is three times greater than Italy’s 4.3 percent.

In 2021, Korea’s DSR increased by 0.8 percentage points compared to the previous year, making it the second-fastest growth rate after Australia’s 1.2 percentage points.

When compared to the pre-pandemic period of 2019, Korea experienced the most rapid rate of growth, with an increase of 1.4 percentage points in the DSR.

To ensure a fair basis of comparison, the Bank for International Settlements (BIS) incorporates mortgage-free home ownership into income calculations and assumes a uniform debt maturity of 18 years when calculating the debt service ratio (DSR).

Consequently, the BIS figures tend to underestimate the actual levels of debt.

Concerns Over Korea’s Rising Household Debt: Urgent Need for Action

According to the Bank of Korea (BOK), the DSR for indebted households in Korea was calculated at 40.6 percent in the fourth quarter of the previous year. This figure is more than three times higher than the BIS calculation.

In a report, the BOK emphasized the urgent need to curb the increasing household debt.

Based on its own assessment, the proportion of household debt to GDP in Korea at the end of last year stood at 105 percent, ranking third among 43 major economies, trailing Switzerland’s 128.3 percent and Australia’s 111.8 percent.

Although there are no immediate indications of widespread debt defaults, a prolonged period of individual borrowing surpassing GDP levels hampers private consumption.

Reduces the efficiency of capital allocation through financial channels, and consequently slows down economic growth.

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