World’s Second-Largest Household Debt: Is Korea’s Monetary Policy Being Hindered? (Mar 17, 2025)

created At: 3/16/2025

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Fact

As of Q4 last year, South Korea’s household debt-to-GDP ratio was 91.7% (ranking 2nd among 38 countries). Canada’s ratio is 100.6%, and although Korea recorded over 100% from 2020 to 2023, it was revised downward to 93.6% at the end of 2023. After a sharp increase in household loans in Q2–Q3 last year, the ratio fell by 1.9 percentage points in Q4 (the fourth largest drop among 38 countries). Emerging markets average household debt ratios: 46.0% overall, 57.4% in Asian emerging markets, and 60.3% globally. BOE Governor’s Target: When household debt exceeds 80% of GDP, it constrains economic growth and financial stability → A gradual target of 80% is set. August Monetary Policy Board Decision: Due to soaring real estate prices and increasing household loans in the Seoul metropolitan area, the benchmark rate was held steady to avoid further financial instability. Recent data: Total household loan balance across the financial sector reached 1,672 trillion won (an increase of 4.3 trillion won from January); among the five major banks, household loans stood at 737.868 trillion won (up by 334.9 billion won from February).

Opinion

Experts and the Bank of Korea believe that rising household debt could hinder the effectiveness of monetary policy. They warn that easing real estate and financial regulations might inadvertently fuel further increases in household debt.

Core Sell Point

Keep a close watch on the expanding uncertainty in monetary policy driven by surging household debt.

As of the end of last year, South Korea’s household debt-to-GDP ratio stood at 91.7%, ranking it second in the world. Although it has maintained high levels—surpassing 100% for four consecutive years since 2020 (with Canada at 100.6%)—a recent statistical reorganization for the previous year showed a slight decline. Nonetheless, the ratio remains significantly above the emerging market average (46.0%) and the global average (60.3%).

The surge in household debt is complicating the Bank of Korea’s monetary policy. According to the BOE’s “Analysis of Household Credit Accumulation Risks and Policy Implications” report, higher household credit ratios are associated with lower GDP growth and an increased likelihood of recession in both the medium and short term. One of the primary reasons the Monetary Policy Board hesitated to cut the benchmark rate last year was concern over high household debt and an overheated real estate market.

Recently, policies such as the lifting of land transaction restrictions in designated areas have led to increased real estate activity, particularly in the Seoul region. Experts warn that this uptick in transactions could trigger a sharp rise in household loans in two to three months. If such a surge occurs, the Bank of Korea will face significant pressure when considering future rate cuts.

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