South Korean household debt ratio is too high


South Korea’s household debt-to-disposable income ratio is the fourth highest in the OECD area.

The Korea Insurance Research Institute announced on November 12 that the debt-to-disposable income ratio of South Korean households was 190.6% in 2019. “For reference, the ratio was 252.6% in Denmark, 232% in countries -Low, 210.1% in Australia. , 104.1 percent in the United States, 110 percent in Japan and 96.2 percent in Germany, ”he explained.

“South Korea’s ratio is the fourth highest in the OECD, yet a rise in interest rates is unlikely to lead to financial instability for South Korean households with strict LTV and DTI regulations in place “, he said, adding: The negative impact of falling house prices on household debt repayment capacities needs to be monitored more closely and borrowers’ repayment capacities rather than size. of the debt itself must be considered in the first place.

According to the institute, a rise in interest rates could have an impact on households and financial markets with already high house prices and already large household debts. His advice is to monitor both microeconomic and macroeconomic soundness so that the impact can be avoided.

Immediately before the global financial crisis of 2008, the respective ratios of the United States, United Kingdom and Ireland were 143.7%, 166.8% and 231.6%, lower than the 259% of the United States. Low and to Denmark’s 324.6%. Yet the financial crisis started in all three countries and this is because their soundness has been insufficiently monitored microeconomically and macroeconomically. At that time, the three countries were barely examining the repayment capacities of borrowers and many loans exceeding house prices were available.

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John A. Bogar