Over the past 10 years, Korea's principal-and-interest repayment burden rose by the second-largest margin in the world. The pace of household debt growth ranked third globally.
The Bank of Korea released a report on the 30th titled "The impact of real estate-driven household debt accumulation on consumption," saying, based on Bank for International Settlements (BIS) data, that Korea's debt service ratio (DSR) in the first quarter of this year rose 1.6 percentage points from the first quarter of 2014. Among 17 surveyed countries, the increase was the largest after Norway (+5.9 percentage points).
The ratio of household debt to gross domestic product (GDP) also increased steeply. According to International Monetary Fund (IMF) data, Korea's household debt-to-GDP ratio last year was up 13.8 percentage points from 2014. Among 77 countries, it was the third-fastest pace after China (+26.2 percentage points) and Hong Kong (+22.5 percentage points).
By contrast, during this period Korea's share of private consumption relative to GDP fell 1.3 percentage points. Among countries where the household debt ratio jumped more than 10 percentage points, Korea was the only one where the share of private consumption shrank. The Bank of Korea (BOK) said, "This suggests that the scale of household debt in Korea is excessive, preventing household borrowing from leading to consumption."
According to the Bank of Korea (BOK)'s estimates, household credit (debt) that accumulated excessively since 2013 shaved 0.40 to 0.44 percentage points off the private consumption growth rate each year. The Bank of Korea (BOK) analyzed that if the household debt-to-GDP ratio had remained at the 2012 level, last year's private consumption level would have been 4.9 to 5.4% higher than it is now.
The Bank of Korea (BOK) said, "Rather than triggering a sudden crisis like a myocardial infarction, the household debt problem is constricting consumption gradually like arteriosclerosis," adding, "However, as the household debt-to-GDP ratio has turned downward recently thanks to coordination among policy authorities and active responses, consistent action over a long horizon could gradually reduce both the accumulation of household debt and structural constraints on consumption."