Private debt’s ratio to GDP exceeds 180%

Private debt’s ratio to GDP exceeds 180%

South Korea’s private sector debt reached a record high in proportion to its gross domestic product at nearly double the national economic output in the third quarter this year, data from the Bank of Korea showed Monday.

Loans extended to households and private companies stood at a record 182.6 percent of the country’s GDP at the end of September, hitting the highest level in the country’s history, the data noted.

The country’s private debt-to-GDP ratio remained under 180 percent through the first quarter of 2015 at 175.4 percent, but it hit 180.3 percent in the second quarter that ended June 30 and has continued to snowball.

The central bank said the data “does not indicate a major risk in a long-term fiscal trend,” but warned that the uptick in the ratio may elevate risks.

The BOK calculates its private debt-to-GDP ratio, a barometer of the country’s fiscal soundness, by dividing total private debt by the overall size of the economy, as measured by nominal GDP.

The ratio for the household sector reached 74.3 percent in the July-September quarter, up 1.7 percentage points over the same period a year earlier.

The data comes as experts have raised concerns over the nation’s fast-rising household debt burden which poses risks to the financial stability of the Asia’s fourth-largest economy.

According to data by the BOK last week, Korea’s household debt grew 10.4 percent on-year to 1,166 trillion won ($1 trillion) as of the end of September, due partly to a recent surge in demand for homes.

Economists said the Korean central bank’s decision to keep its key interest rate at a record low level of 1.5 percent and the government’s deregulation aimed at boosting the housing market lead to heavy household debt.

Meanwhile, the corporate debt-to-GDP ratio increased 2.3 percentage points to 108.2 percent in the cited period, according to Monday’s data.

The country also has a high ratio of corporate debt to GDP compared to member countries of the Organization for Economic Cooperation and Development.

When the ratio reached 105 percent in the second quarter of 2014, it already surpassed the OECD average of 97.1 percent, data collected from the McKinsey Global Institute showed.


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