SEOUL, June 16 (AJP) - South Korea's household debt-to-gross domestic product ratio dropped to its lowest level in over six years at the end of last year, according to the Bank for International Settlements on Tuesday.
While the financial industry attributes the decline to tighter lending rules, the shift was driven more by a surge in nominal economic growth than by a pure reduction in borrowing.
Data by the Bank for International Settlements (BIS) showed that the ratio reached 88.6 percent in the fourth quarter, dropping 0.8 percentage points from the previous three months. It is the lowest figure recorded since the third quarter of 2019.
The household debt metric hit a high of 99.1 percent in late 2021 and hovered just below 90 percent for most of last year. Financial regulators have worked to limit new loans, but the sudden drop in the percentage is largely a statistical result of an expanding economic denominator.
Because the ratio measures total household debt against the size of the broader economy, a higher gross domestic product naturally shrinks the headline debt figure.
South Korea's nominal output has been expanding rapidly, hitting a 17.1 percent year-on-year increase in the first quarter. It marks the sharpest growth since 1995, leading analysts to expect further mathematical declines in the debt ratio even if the actual volume of debt remains high.
Government debt metrics showed a similar trend due to the expanding economy. The sovereign debt-to-gross domestic product ratio declined by an unprecedented 2.0 percentage points in the fourth quarter to 45.7 percent, although it remains above the 43.6 percent logged at the end of 2024.
The central bank and financial authorities have set a long-term goal to bring the household debt ratio below 80 percent.
Bank of Korea Governor Shin Hyun-song discussed the changing metrics at an international conference earlier this month. "The nominal gross domestic product growth rate seems to be very high, which will have a quite beneficial effect on the household and public debt-to-gross domestic product ratios," Shin said.
Copyright ⓒ Aju Press All rights reserved.