S.Korean banks' household, company loans near $1.8 trn
Ik-hwan Kim
Jan 15, 2021 (Gmt+09:00)
South Korean households and companies have taken out fresh loans worth 208 trillion won ($189 billion) from banks last year, pushing the outstanding debt balance and the annual debt increase rate to record highs.
Banks’ outstanding balance for household and company loans stood at 1,965.2 trillion won ($1.8 trillion) at the end of 2020, up 207.9 trillion won from the previous year. It marked the largest year-on-year increase since 2004 and double the increase from 2019.
Households took out loans for mortgages and to invest in stocks, while companies borrowed money to cover losses that stemmed from weakened business activity due to the COVID-19 crisis, the Bank of Korea said in a report issued on Jan. 14.
Market experts are worried that the rising debt may hurt the Korean economy. The Bank for International Settlements (BIS) has said that a country's economic growth rate could slow if the household debt-to-GDP ratio exceeds 80%. Korea's household debt-to-GDP ratio exceeded 100% in the third quarter of last year.
There are also rising concerns over potential debt insolvency. The government has rolled out support measures to mitigate the effects of the COVID-19 pandemic, which has helped maintain a low default rate.
However, many companies and households may become insolvent once the stimulus measures come to an end, which could shake up the country's financial system and the GDP, according to Kim Sang-bong, professor of economics at Hansung University.
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