debt per capita reached the highest level at 19.3 million
almost 74 percent of GDP per capita, as the average householddebt also increased to 53 million
The banking sectormortgage loan balance also rose to 316.9 trillion
at the end
of 2012 from 264.2 trillion
at the end of 2009, an increaseof 19.9 percent.Korea’s household debt also poses potenal threats tothe naon’s economy when the debt is viewed from theinternaonal perspecve. According to OECD stascs, whichalso include the nancial debt of non-prot organizaons, therao of Korea’s household debt to disposable income roseto 150.8 percent in 2010 from 116 percent in 2004 and 139percent in 2007. An increase of 11.8 percent from 2007 to2010 aer the global nancial crisis is higher than that of otherOECD countries. In 2010, the average debt-disposable incomerao of 25 OECD countries for which data was available was128.8 percent; in comparison, the average debt-disposableincome rao in the U.S. was 122.5 percent in 2010, the lowestsince 2003 and a 13.9 percentage point decline from its peak(136.4) in 2007.
The rao of household debt to GDP reached81 percent in 2010, higher than the OECD countries’ average of 73 percent.
A major consequence of Korea’s rising household debt is thedecline in household savings. Korea’s household savings ratedeclined signicantly aer the nancial crisis from over 20percent in the mid-1990s to a mere 2.7 percent in 2011. This isonly half of the average household savings rate of 5.3 percentamong the 23 OECD countries where data was available. For theU.S., in comparison, the average household savings ratewas 4.2 percent in 2011.
The sudden decline of Korea’s
household savings rate, which registers as one of the
lowest along with New Zealand (2.3 percent) and Japan(2.9 percent), is unprecedented in terms of the me periodof the overall drop in savings among the OECD countries.
The average household savings rate in Korea from 2000to 2010 was 4.7 percent, which is less than one-fourth of the average savings rate (19.8 percent) from 1990 to 1999.The savings rate in Korea especially plummeted aer twoperiods of economic distress: from 1998 to 2002 aer theAsian nancial crisis when the savings rate dropped from21.6 percent to 0.4 percent; from 2004 to 2008 aer thecredit card crisis, the savings rate declined from 8.4 percentto 5.8 percent.
From the macroeconomic view, the decline in savings ratecaused from the rise in household debt turns a virtuous cycleinto a vicious cycle among savings, investments and economic
growth. Therefore, the lack of sucient savings in an economywill retard economic growth in the future.
At the householdlevel, the decline in savings will exacerbate the household debtproblem and can create more credit defaulters and bankruptcies.The limited exisng evidence which foreshadows only the p of
the magnitude of the problem also underscores the claim thatthe rising household debt, despite the government policies to
rein in the problem, remains one of the predominant risk factorsthat could threaten the stability of the Korean economy.
2. Trends of Korea’s Household Debt
There are two ways to dene household debt in Korea. First, if the household is the focus of analysis (as it is with this paper),the term for “household debt” is synonymous with “householdcredit” (
), which is dened as the sum of householdloans and purchases on credit. Second, however, for crossnaonal comparison, the term for household debt is “individualnancial debt (
),” which also includes debtincurred by the self-employed and non-prot organizaons inaddion to households, beer represents the household debtsince such stascs are prepared according to an accepted globalmethod (System of Naonal Account).
This paper uses the rstdenion of household debt (“household credit (
)”) tobe consistent with other related studies.
Figure 1 shows that Korea’s household debt has risenconnuously since 2000, although the rate of increase variesfrom me to me, and has declined since 2010. The household
Figure 1: Trends of household debt in Korea
12.61.328184.108.40.206.812.610.38.78.78.220.127.116.11Household Debt (trillion
)Household Debt growth rate (%)
T r i l l i o n
w o n
Nominal GDP growth rate (%)2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201212001000800600400200035302520151050-5-10-15
Source: Author’s creaon with data from the Bank of Korea, Household Credit Trends