South Korea's net external financial assets, which show the country's foreign payment ability, surpassed $1 trillion for the first time. The significant increase in domestic investors' purchases of overseas stocks and the expansion of overseas investments by Korean corporations, particularly in secondary batteries, contributed to this growth. However, the ratio of short-term external debt, considered an indicator of external debt soundness, rose slightly compared to last year.
According to the 'international investment position' announced by the Bank of Korea on the 27th, as of the end of last year, net external financial assets totaled $1.1023 trillion, a $292 billion increase from a year earlier. It surpassed $1 trillion for the first time in 10 years since net external financial assets turned positive in 2014. Only six countries, including Japan, Germany, China, Hong Kong, Norway, and Canada, had net external financial assets exceeding $1 trillion as of the end of 2023.
Net external financial assets are calculated as the amount of 'external financial assets' that include residents' overseas investments minus 'external financial liabilities' from foreign investments in the domestic market. This indicates South Korea's foreign payment ability. Park Seong-gon, Head of the International Investment Statistics Team at the Bank of Korea, noted, "The increase in our net external financial assets is a positive signal, as it indicates improvements not only in financial stability and national credibility but also in the stability of the current account."
The increase in net external financial assets was due to the growth in external financial assets while external financial liabilities decreased. Last year, external financial assets amounted to $2.498 trillion, and external financial liabilities were $1.3958 trillion. External financial assets increased by $166.3 billion year-on-year, while external financial liabilities decreased by $125.7 billion.
Specifically, both direct investment and securities investment increased in external financial assets. Last year's direct investments grew by $23.1 billion to $747.8 billion, driven by increased overseas transaction activity centered on secondary battery corporations. Securities investment recorded $994.3 billion, a $136.7 billion increase, due to the expansion of residents' investments in overseas equity securities and debt securities, as well as the rise in global stock prices.
In contrast, external financial liabilities saw a decrease in both direct investment and securities investment. Direct investment decreased by $19.3 billion to $269.9 billion, attributed to rising financing costs amid prolonged high interest rates. Securities investment recorded $837.8 billion, down $118 billion year-on-year, influenced by non-transaction factors such as the depreciation of the won and a decline in domestic stock prices.
As net external financial assets increased, net external receivables (external receivables - external liabilities) also rose. By the end of last year, South Korea's net external receivables reached $398.1 billion, an increase of $26.1 billion from a year earlier. External receivables refer to the fixed financial assets held by domestic residents against non-residents, while external liabilities refer to fixed financial debts. External liabilities exclude equity, stocks, funds, and derivatives with undetermined prices.
External receivables amounted to $1.0681 trillion, reflecting a $23.6 billion increase since the end of the previous year. By term, short-term bonds (with a maturity of less than one year) amounted to $627 billion, while long-term bonds (with a maturity of more than one year) totaled $441.1 billion, showing increases of $7.8 billion and $15.7 billion, respectively. Long-term bonds were positively influenced by increased overseas long-term bond investments due to U.S. interest rate cuts.
External liabilities stood at $670 billion, a decrease of $2.5 billion from a year earlier. During the same period, short-term liabilities increased by $6.2 billion to $146.9 billion, while long-term liabilities decreased by $8.7 billion to $523.2 billion, influenced by the depreciation of the won, which reduced the dollar equivalent.
Indicators reflecting foreign exchange soundness have slightly worsened. The ratio of short-term external debt to external liabilities rose to 21.9% from 20.9% last year. The ratio of short-term external debt to reserves also increased to 35.3%, up from 33.5% last year. However, both indicators remain below the average levels for the past five years (2019-2023)—27.5% and 37.1%, respectively.
Park noted, "The recent increase in short-term debt is a result of increased demand for foreign currency funding within the domestic market due to a surge in overseas investments, which led some foreign banking branches to increase short-term foreign currency borrowings. While the proportions and ratios of short-term external debt have slightly rebounded, they still maintain a relatively low level compared to the past after a significant drop last year, indicating that both external debt soundness and foreign payment capacity remain healthy."
Meanwhile, the Ministry of Strategy and Finance issued a press release the same day, stating, "Given the ongoing impact of the new U.S. government policies, major countries' monetary policy shifts, and geopolitical uncertainties on international financial markets, the government will closely monitor the trends in external liabilities based on close cooperation among related agencies."