As of the end of last year, South Korea’s household debt-to-GDP ratio remains the highest among major countries worldwide, despite a recent change in the base year for GDP calculations. This adjustment, which shifted the base year from 2015 to 2020, resulted in a decrease in the household debt-to-GDP ratio from 100.4% to 93.5%. Similarly, the corporate debt-to-GDP ratio fell from 122.3% to 113.9%. However, these ratios still place South Korea at the top of the global rankings for household debt and among the highest for corporate debt.
The increase in nominal GDP from 2,236 trillion won to 2,401 trillion won contributed to the lower debt ratios. Despite this, South Korea’s debt levels remain significantly higher than those of other countries. According to the International Institute of Finance (IIF), South Korea’s household debt-to-GDP ratio was the highest among 34 countries at the end of last year, with a gap of just 0.2 percentage points between South Korea and the second-highest country, Hong Kong. The average household debt-to-GDP ratio for the other 33 countries was 34.2%.
The corporate debt-to-GDP ratio in South Korea dropped from 4th to 5th place globally, with Japan moving up to 4th place. Hong Kong had the highest corporate debt-to-GDP ratio globally at 258.0%, followed by China and Singapore.
The Bank of International Settlements (BIS) is expected to release debt ratios for various countries this week, but it is uncertain if they will reflect South Korea’s new base year results. Under the new base year, South Korea’s household debt-to-GDP ratio never exceeded 100%, with the highest being 98.7% at the end of 2021. The previous highest household debt-to-GDP ratio before the base year change was 105.4% at the end of 2021.
In October 2022, South Korea’s central bank governor, Lee Chang-yong, stated during a National Assembly audit, “It is my responsibility to lower the household debt-to-GDP ratio to below 100%.” Similarly, Lee Bok-hyun, the head of the Financial Supervisory Service, declared, “The goal is to reduce the household debt-to-GDP ratio to below 100% in the next year and the year after.”
The unexpected achievement of this policy goal was due to the increase in nominal GDP following the base year adjustment, rather than a slowdown in household debt growth. Authorities have no plans to change macroprudential policies despite the improved debt ratios. A Bank of Korea official emphasized, “There is no change in our existing stance to stabilize the household debt-to-GDP ratio downward, as the household debt level remains high compared to other countries.”
The central bank will continue efforts to stabilize the household debt-to-GDP ratio downward and will release a financial stability report later this month, outlining management plans based on the new base year indicators. This report is expected to provide detailed prudential management measures to address the high levels of household and corporate debt in South Korea.