August 12, 2022 12:31
Koreans accumulated more debt faster than in any major country since the coronavirus pandemic started two years ago.
According to the Bank for International Settlements on Thursday, Korea saw the fastest household debt growth compared to GDP among 43 major countries.
In the fourth quarter of 2019, just before the pandemic started, Korea's household debt amounted to 95 percent of GDP. But by the fourth quarter of 2021 the ratio had risen 11.6 percentage points to 106.6 percent.
Over the same period, U.S. household debt to GDP increased 2.7 percentage points, in the U.K. 2.6 percentage points, in Germany four percentage points and in Japan and France 4.9 percentage points.
In money terms Korea's household debt soared from W1.6 quadrillion in late 2019 to W1.9 quadrillion at the end of last year, according to the Bank of Korea (US$1=W1,303). That means each Korean took on an additional W5 million in debt in the two years of the pandemic.
The problem is compounded by runaway inflation, declining real estate prices and rising interest rates.
As more and more people face increasing debt interest burdens, spending will decrease and lead to an economic slowdown. According to a study by the Korea Institute of Finance, 17.2 percent of households in Korea had more expenses than income last year.
The average annual income of those households was W46 million, but they had to repay W45 million a year on their loans on top of W24 million spent on essentials. That means people they had to make 1.5 times more money than their wages just to service their debt and make ends meet.
The only way to do that was to borrow more money.
There are fears that young Koreans who took out huge loans to buy starter homes will be hit particularly hard by rising interest rates.
One 38-year-old office worker in Seoul took out a W400 million loan to buy an apartment last year. Some W80 million of that was a credit loan whose interest rate surged four percentage points in just one year and now costs him an additional W200,000 a month.
He and his wife decided not to go on a summer holiday and stay at home.
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