With Household Debt Ratio Expected at 81%, Target to Be Achieved Four Years Early
The Bank of Korea will release preliminary second-quarter flow of funds statistics on the 7th. Attention is focused on whether household debt will meet the government's management target—originally set for 2030—more than four years ahead of schedule. Flow of funds statistics show how economic agents such as households and businesses raised and deployed capital, and this release will also include preliminary figures for household debt size and ratio as of the end of the second quarter.
The household debt ratio refers to the share of household liabilities, such as mortgage loans, in nominal gross domestic product (GDP), the size of the overall economy. At a financial stability review on the 22nd of last month, the BOK projected that the ratio would fall from 85% in the first quarter to the low-80% range in the second quarter. The decline in the ratio stems not from a reduction in debt itself but from a denominator effect driven by the surge in nominal GDP. Thanks to rising semiconductor prices and strong exports, nominal GDP grew 17.1% in the first quarter and 26.4% in the second quarter this year.
"By the end of this year, the (household debt) ratio could even reach the mid-to-high 70% range," Jang Jung-su, Senior Deputy Governor of the Bank of Korea, said at a briefing, adding that "the 'denominator effect' from the sharp rise in GDP played a major role."
Household debt continued to grow. Household credit in the second quarter rose 1.3% from the previous quarter, with the balance exceeding 2,000 trillion won for the first time on record. Housing-related loans increased by 12.2 trillion won and other loans by 12.8 trillion won, driving the growth. In the minutes of the August Monetary Policy Committee meeting, it was noted that households' debt-servicing burden depends on disposable income rather than nominal GDP, raising the need for policy that takes into account the gap between indicators and perceived burdens.
The interest burden is already becoming a reality. The rate on new bank mortgage loans in August was 4.66% a year, the highest in three years and nine months since November 2022, while the overall household loan rate also hit 4.76%, the highest since November 2024. Given the upward trend in market rates, the BOK sees a high likelihood of further loan rate increases in September.
The government and the BOK maintain that they will not ease their stance on household debt management despite the falling ratio, pointing out that household debt itself has not declined and expectations of rising home prices remain. "My view that we must maintain the household debt management framework remains unchanged," Senior Deputy Governor Jang said at the September financial stability briefing.
