December 28, 2020 09:50
Household debt in Korea has outpaced the country's GDP for the first time ever as more people borrowed money to tide them over the coronavirus epidemic or rushed to buy homes.
Government debt is also swelling rapidly due to expanded welfare coverage. The Bank of Korea said on Dec. 24 that Koreans' household debt totaled W1.94 quadrillion at the end of September, surpassing the W1.92 quadrillion in GDP (US$1=W1,104). Corporate debt reached W2.11 quadrillion or 110.1 percent of GDP.
"Excessive debt crimps private spending and output, which causes economic vitality to sputter," the BOK warned.
Government debt, which had been declining since 2015, grew to a record high. The Ministry of Economy and Finance said government debt has now surpassed W800 trillion for the first time. Including state-run companies, the entire public sector’s debt stood at W1.13 quadrillion.
Combined household and government debt is expected to surpass W5 quadrillion this year.
A major reason for the soaring household debt is a panic-buying spree among home buyers, especially young people in their 20s and 30s, as property prices kept rising despite the government's attempts to tame them.
Loans taken out by those in their 20s and 30s accounted for a whopping 42.7 percent of total household debt. Many also borrowed heavily to invest in stocks as they seek high returns amid ultra-low interest rates, which in turn make it much easier to take out loans.
Emergency loans to cushion the impact of the coronavirus crisis also played a role. But analysts warn that these people could have a tough time financing their debts once the pandemic ends and central banks around the world start raising interest rates.
Min Jwa-hong at the central bank said, "Low interest rates and loan maturity extensions can't continue forever. If the situation changes, we could see a rapid deterioration in loan-repayment abilities. We need to preempt the risks."
- Copyright © Chosunilbo & Chosun.com