South Korea’s private-sector debt has ballooned this year as individuals and companies alike rushed to take out loans against pandemic uncertainties while the rates were cheap and easy to outsize the country’s gross domestic product (GDP) by more than two times, data from the central bank showed.

According to the Bank of Korea, the country’s private-sector debt against nominal GDP reached 206.2 percent at the end of the second quarter, up 5.2 percentage points from the end of the first quarter. It is the highest ratio since the BOK began compiling related data in 1975.

Household debt reached 1,637.3 trillion won ($1.4 trillion) as end of June, up 5.2 percent from a year ago. Mortgage-backed loans gained 6.4 percent and other loans including credit loans jumped 3.9 percent.

The BOK said mortgage-backed loans and other loans increased significantly after June amid increased housing transactions.

As of end of August, housing-related loans gained 15.4 trillion won from the end of May and other loans 17.8 trillion won, which is each 81.2 percent and 93.3 percent greater than the rises in the same period last year.

Disposable income, however, gained only 0.7 percent in the end of June from the same period a year ago, raising debt ratio against disposable asset to 166.5 percent, the highest level since the fourth quarter of 2002.

The BOK noted that it is highly likely that households’ debt financing capability could have deteriorated due to worsened business and job environment. Credit risk isn’t visible at this stage thanks to various financial support measures such as deferment in payments. It, however, warned of insolvency risk surge if COVID-19 situation stretches.

Corporate loans stood at 2,079.5 trillion won at the end of June, up 9.6 percent from the same period last year, data showed. It is the highest growth since 11.3 percent in the third quarter of 2009.

The BOK said corporations could face increased credit risk in the future if economic recovery at home and abroad is delayed due to prolonged COVID-19.

Despite the surge in private-sector debt, the BOK said bank assets yet remain sound.

Data showed that banks’ non-performing loan ratio reached 0.71 percent as of end of June – lower than 0.91 percent in the same period last year. Their return on assets, however, worsened from 0.65 percent in the first half of last year to 0.49 percent in the same period this year. The fall is mainly due to downsized allowance for bad debts related to COVID-19 loans and interest rate spread.

By Lee Eun-joo

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]