Korea's Household Debt 2nd Heaviest in the World

Korea ranks second among the world's major economies when it comes to household debt and its growth. 

According to the Bank for International Settlements on Monday, Korea's household debt service ratio (DSR), which measures debt compared to income, stood at 13.6 percent last year, second only after Australia's 14.7 percent among the world's 17 largest economies.

Korea's DSR was almost double the U.S.' 7.6 percent and Japan's 7.5 percent and three times Italy's 4.3 percent. It rose 0.8 percentage point from 12.8 percent in 2021, also the second fastest after Australia's 1.2 percentage points. 

But compared to 2019, before the coronavirus pandemic, Korea saw the fastest rate of growth with 1.4 percentage points.

To even out the basis of comparison, the BIS includes mortgage-free home ownership as part of income when calculating DSR and applies a uniform debt maturity of 18 years. As a result, it comes out lower than actual levels. 

The Bank of Korea calculates the DSR of indebted Korean households at 40.6 percent in the fourth quarter of last year, more than three times higher than the BIS' calculation.

The BOK in a report flagged an urgent need to slam the brakes on the rise in household debt. By its own calculation the proportion of household debt to GDP in Korea late last year stood at 105 percent, third among 43 major economies after Switzerland's 128.3 percent and Australia's 111.8 percent.

Although there are no immediate signs of massive debt defaults, a prolonged period of individual borrowings surpassing GDP stunts private consumption, lowers the efficiency of capital distribution through finance and therefore slows economic growth.