Korea’s private-sector debt at 2.1 times GDP as of Sept

South Korea’s private-sector debt soared to outweigh the country’s gross domestic product (GDP) by more than two times by September as households and companies turned heavily reliant on borrowings to survive the Covid-19-battered times, the central bank data found.

According to the Bank of Korea on Thursday, the nation’s private sector debt against nominal GDP came at 211.2 percent as of the end of the third quarter, up 4.8 percentage points from the previous three-month period. The ratio is the highest since the central bank began collecting related data in 1975.

Household debt grew 7 percent from last year to 1,682.1 trillion won ($1.52 trillion) as of end of September. Mortgage-backed borrowings gained 7.2 percent on year and other loans such as credit loans expanded 6.8 percent.

Disposable income during the period edged up a mere 0.3 percent, bringing debt ratio against disposable asset to 171.3 percent. It was the highest level since the record-keeping began in the fourth quarter in 2002.

The BOK warned against the increasing loan delinquency risk if the household income fails to improve considerably due to the delayed economic recovery.

Corporate loans reached 1,332.2 trillion won at the end of September, up 15.5 percent from a year ago.

The central bank said corporate borrowings have ballooned amid the prolonged virus outbreak, and advised businesses to prepare for further credit deterioration in case of rising uncertainties and sluggish performance.

Despite the surging private sector borrowings, bank assets still remain sound, the BOK said. Local commercial lenders’ non-performing loan ratio stood at 0.4 percent as of the end of September, lower than 0.49 percent in the same period last year. Banks were able to maintain the soundness thanks largely to the government’s support measures such as deferment in debt repayments, according to the central bank.

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