Debt-ridden Korea, this is the way to go… Debt and default growth rate both ‘world’s second’.

A sign regarding loan interest rates is posted at a bank in downtown Seoul. Yonhap News

[Herald Economy=Han Seok-hee] South Korean companies’ debt is growing at the second-fastest rate in the world. Particularly, the rate of insolvency is also the second highest in the world, indicating that companies struggling with loans are reaching their limits.

It’s a worrying trend for South Korea, already infamous for having the highest household debt in the world. The problem is that both corporate and household loans continue to grow. In just two weeks this month, loans to households and businesses from the five major banks increased by 2-3 trillion won.

▶Corporate debt ratio 126.1%… Third highest after Hong Kong and China= According to the latest 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 was the third highest in the world at 126.1%.

Only Hong Kong (267.9%) and China (166.9%) had higher ratios than South Korea.

South Korea’s corporate debt-to-GDP ratio jumped 5.2 points from the second quarter (120.9%), surpassing Singapore in just three months to rank third. This increase is the second highest in the world, following Malaysia.

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

Despite the global trend of tightening, the corporate debt ratio has increased in only nine countries over the past year, including these three countries, Saudi Arabia (+5.5 points), India (+2.6 points), Vietnam (+2.5 points), Kenya (+1.2 points), South Africa (+0.3 points), and Egypt (+0.1 points).

▶Korea’s insolvency rate about 40%… Second in the world after the Netherlands= The IIF also compared the increase in corporate insolvency rates (from January to October this year compared to the same period last year) in 17 major countries, including South Korea. South Korea ranked second with a rate of about 40%, following the Netherlands (about 60%).

The countries surveyed included 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.

In its report, the IIF said, “Especially in many countries around the world, including Europe, as banks reduce loans to the private sector, signs of increased vulnerability among low-credit companies are becoming increasingly clear.” It added, “This trend is also reflected in the increase in the number of corporate insolvencies.”

▶Household loan ratio 100.2%, highest for fourth year in a row= In terms of household debt, South Korea’s ratio to GDP was the highest among 34 countries at 100.2% for the third quarter. Since the start of the COVID-19 pandemic in 2020, South Korea has held this unfortunate first place for nearly four years.

In particular, South Korea was the only country surveyed where household debt exceeded the total size of the economy (GDP).

The Bank of Korea recently warned in a research report that “when the ratio of household credit to GDP exceeds 80%, not only the medium and long-term but also the short-term growth rate declines.” The countries where the ratio of household credit to GDP exceeds 80% were South Korea, Hong Kong (95.2%), and Thailand (91.5%).

▶Government debt ratio 48.9%, 22nd place… Fourth highest increase of 4.7 points in a year= The ratio of South Korea’s government debt to GDP (48.9%) was in the lower-middle range, ranking 22nd.

Compared to the size of the economy, the countries with the most government debt were Japan (239.9%), Singapore (170.8%), the United States (117.6%), and Hong Kong (103.4%).

However, the rate of increase in South Korea’s government debt was among the fastest in the world.

Compared to the third quarter of last year (44.2%), the increase (4.7 points) was the fourth highest in the world, following Hong Kong (23.3 points, 80.1 to 103.4%), Argentina (8.1 points, 74.0 to 82.1%), and China (7.1 points, 75.9 to 83.0%).

▶Bank corporate borrowers and loan amounts at all-time high… Delinquency rate at its highest in two years and three months= The problem is that the size of private sector (household + corporate) credit (debt) in South Korea, which greatly exceeds the size of the economy, continues to grow in the fourth quarter.

In October, household loans surged by 6.8 trillion won, mainly from mortgage loans in the banking sector, and jumped by 6.3 trillion won across the entire financial sector, including the secondary financial sector.

The increase in loans to households and businesses shows no signs of slowing down in November.

As of the 16th of this month, the total amount of household loans from the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) was 689.5581 trillion won, an increase of 3.5462 trillion won in about two weeks compared to the end of October (686.119 trillion won).

Not only did mortgage loans increase by 3.4175 trillion won (from 521.2264 trillion won to 524.6439 trillion won), but credit loans also increased by 310.6 billion won (from 107.9424 trillion won to 108.2531 trillion won).

The balance of loans to businesses (including small businesses and SMEs, not households) is currently recorded at 766.3856 trillion won, an increase of 2.696 trillion won compared to the end of last month.

Compared to the end of last year (703.7268 trillion won), the corporate loans from the five major banks have surged by 62.6587 trillion won this year alone.

Particularly in the case of corporate loans, the delinquency rate is also rising rapidly.

According to the ‘Corporate Loan Status’ data submitted by the Bank of Korea to Yang Kyung-sook, a member of the National Assembly’s Planning and Finance Committee, as of the second quarter of this year, the number of corporate borrowers at domestic banks was 3.5 million and their loan balance was 1,262 trillion won, both setting all-time records.

The delinquency rate of corporate borrowers also reached the highest level in two years and three months at 0.37% in the second quarter, following the first quarter of 2021 (0.37%).