South Korea’s private sector debt-to-GDP ratio drops slightly to 219% in Q1

[Photo by Han Joo-hyung]

Growth in South Korea’s private debt, which more than doubled gross domestic product, slowed slightly in the first quarter amid rising interest rates.

The country’s private sector credit to nominal gross domestic product (GDP) ratio stood at 219.4% at the end of March, according to the Bank of Korea on Wednesday.

The figure is down 0.1 percentage point from the all-time high of 219.5% at the end of December 2021 on household debt reduction, the ratio of which fell to 104.5%.

Household debt rose 5.4% year on year to 1.859.4 trillion won ($1.4 trillion) at the end of March, but the pace of growth slowed, the central bank said.

That put household disposable income to debt ratio at 168.9%, down 2.2 percentage points from three months earlier.

Corporate borrowing, however, rose amid weak stock and bond market conditions.

Business loans jumped 14.8% year on year to 1.609 trillion won at the end of March, as companies sought loans before interest rates rose.

The Financial Stress Index, which represents the level of stress in the financial market based on readings of economic activities and capital markets, came in at 13 in May to remain in the “cautious” category for the third consecutive month. .

The financial vulnerability index, measuring the imbalance of the financial market and the authorities’ capacity for resilience, weakened to 52.6 from 54.8 in just over three months. But, it is nevertheless higher than the long-term average of 37.4 established since 2007 on the heavy indebtedness of households.

The central bank was weary of financial market risks from high global inflation, faster monetary tightening, and the fallout from the Ukraine-Russia war and China’s economic slowdown.

The bank in the report suggested a gradual adjustment of lending policy and fiscal support measures to slow the pace of debt growth, as well as to maintain the country’s financial resilience by reassessing debt risk assessment standards. credit and the level of loan loss reserve.

By Cho Jee Hyun

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Sallie R. Loera