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

A notice related to loan interest rates is posted at a bank in downtown Seoul. Yonhap News

[Herald Economy = Han Seok-hee] The pace at which South Korean companies are accumulating debt is the second fastest in the world. Particularly, the rate of bankruptcy is also the second highest globally, indicating that companies struggling to repay their loans are reaching their limit.

South Korea, already infamous for having the world’s largest household debt, is also reaching a critical point with corporate loans. The problem is that both corporate and household loans are not decreasing, but continuing to increase. In just half a month this month, household and corporate loans from the top five banks increased by 2 to 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 ratio to GDP (126.1%) was the third highest among 34 countries (single statistics for the euro area).

The only countries that surpassed South Korea were Hong Kong (267.9%) and China (166.9%).

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

Compared to the third quarter of last year (120.4%), it was 5.7 percentage points higher, and the rate of increase over the past year was also the third fastest after Russia (13.4 percentage points, 68.2→81.6%) and China (8.6 percentage points, 158.3→166.9%).

Despite the global tightening trend, the only countries where the corporate debt ratio has increased over the past year were these three countries, 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), a total of only nine countries.

▶South Korea’s bankruptcy growth rate about 40%… Second in the world after the Netherlands= 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, and South Korea ranked second with about 40%, following the Netherlands (about 60%).

The countries surveyed for comparison 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.

In the report, the IIF stated, “Especially in many countries around the world, including Europe, as banks reduce loans to the private sector, signs of increasing vulnerability among companies with low credit ratings are becoming increasingly clear,” and “This trend is also reflected in the increase in the number of corporate bankruptcies.”

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

In particular, South Korea was the only country among the surveyed nations where household debt exceeded the total economic scale (GDP).

The Bank of Korea recently warned in a research report that “if the ratio of household credit to GDP exceeds 80%, not only the medium to long term but also the short-term growth rate falls.” 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 fastest increase of 4.7 percentage points in a year= The ratio of South Korean government debt to GDP (48.9%) was ranked 22nd, which is a middle to lower level.

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

However, the speed at which South Korea’s government debt is increasing is among the fastest in the world.

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

▶Bank corporate loans and loan amounts at an all-time high… Delinquency rate highest in two years and three months= The problem is that the size of credit (debt) in the private sector (household + company) in South Korea, which far 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 household and corporate loans does not seem to slow down in November either.

As of the 16th of this month, the balance of household loans at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) totaled 689,558.1 billion won, an increase of 35,462 billion won in about half a month compared to the end of October (686,119 billion won).

Not only did mortgage loans increase by 34,175 billion won (521,226.4 billion won → 524,643.9 billion won), but credit loans also increased by 3,106 billion won (107,942.4 billion won → 108,253.1 billion won).

The balance of corporate loans (including large corporations + small and medium-sized enterprises including small businesses), which are not households, was recorded at 766,385.6 billion won. This is 2,696 billion won more than the end of last month.

Compared to the end of last year (703,726.8 billion won), corporate loans from the five major banks have surged by 62,658.7 billion won this year alone.

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

According to the ‘Corporate Loan Status’ data submitted by the Bank of Korea to Rep. Yang Kyung-sook (Democratic Party) of the National Assembly Planning and Finance Committee, as of the second quarter of this year, the number of corporate loan borrowers in domestic banks was 3.5 million and their loan balance was 1,262 trillion won, both of which set all-time records.

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