Korean companies on the brink! Debt-Default Growth Rate ‘2nd Fastest in the World’.

Despite the tightening of monetary policy and high interest rates, South Korean companies’ debts are not decreasing. Instead, they are growing at the second-fastest rate globally when considering the size of the national economy.

The rate of bankruptcy is also the second-highest in the world, suggesting that many businesses, including small business owners and self-employed individuals, have reached their limits in warding off crises through loans.

Although South Korea’s household debt remains the highest in the world relative to the size of the economy, the ratio to the Gross Domestic Product (GDP) has slightly decreased from the second quarter, dropping to around 100%.

The loans of South Korean companies and households, which are among the highest in the world, have increased by 2 to 3 trillion won ($1.7 billion to $2.5 billion) in just two weeks this month at the five major banks. The ongoing increase in private loans is expected to influence the decision on the base interest rate at the Monetary Policy Board meeting on the 30th.

According to the Global Debt report by the Institute of International Finance (IIF) on the 19th, as of the third quarter of this year, South Korea’s non-financial corporate debt-to-GDP ratio (126.1%) was the third-highest among 34 countries (single statistics for the Euro area). Only Hong Kong (267.9%) and China (166.9%) had higher ratios.

South Korea’s corporate debt-to-GDP ratio jumped 5.2 percentage points from the second quarter (120.9%) to overtake Singapore and rise to third place within three months. This increase is the second-highest in the world, following Malaysia (28.6 percentage points, from 58.3 to 86.9%).

Compared to the third quarter of last year (120.4%), it has increased by 5.7 percentage points. The speed of increase over the past year was the third highest, following Russia (13.4 percentage points, from 68.2 to 81.6%) and China (8.6 percentage points, from 158.3 to 166.9%).

Despite the global tightening trend, only nine countries, including these three, Saudi Arabia (+5.5 percentage points), India (+2.6 percentage points), Vietnam (+2.5 percentage points), Kenya (+1.2 percentage points), South Africa (+0.3 percentage points), and Egypt (+0.1 percentage points), saw their corporate debt ratios increase over the past year.

Being third among these countries means that the speed of increase in South Korea’s corporate debt is unusually fast compared to other countries, considering the high-interest-rate environment.

Moreover, the IIF also compared the increase in corporate bankruptcy rates (from the beginning of this year to October, compared to the same period last year) in 17 major countries, including South Korea. South Korea ranked second with a rate of approximately 40%, following the Netherlands (approximately 60%).

The countries compared in the study were South Korea, the United States, the United Kingdom, France, Germany, the Netherlands, Finland, Belgium, Spain, Sweden, Denmark, Turkey, Canada, Japan, Australia, Singapore, and South Africa.