Korea’s total debt reaches 2.6 times GDP

Analysts express concern about pace of debt growth amid Hankook Tire Co., South Ko- economic downturn


Korea’s public and private-sector borrowing reached 2.6 times its gross domestic product, data showed Monday, fueling concerns.

The latest figure compiled by think tanks and brokerages put the combined debt of the Korean government, state-run and private firms and households at 3,283 trillion won ($2.9 trillion) at the end of June this year, up 5.7 percent from 3,106 trillion won a year earlier.

The debt-to-GDP ratio of 2.6 is assumes that Korea’s GDP would grow 8 percent on a nominal basis to 1,267 trillion won, and the reading excludes stock issuance and direct investment that is classified as debt under the data calculated by the Bank of Korea.

Debts of households and non-profit agencies rose 9.4 percent to 1,050 trillion won from a year earlier, while the government’s debt including in provincial areas went up 5.9 percent to 419 trillion won.

State-run companies saw their combined debt soar 15.9 percent to 353 trillion won, outpacing other sectors during the cited period. Private firms, in contrast, managed to control debt growth to just 1 percent, to 1,461 trillion won.

Analysts said the country’s indebtedness is growing at a pace that is causing alarm and concern at a time when the overall economy faces a string of challenges at home and abroad.

A report by Kiwoom Securities said the debt’s pace of growth is at a dangerous level and household debt in particular could spark a serious problem.

“Individuals’ debt level is at a level that is difficult to manage, and small shops operated by individuals are burdened with more debt while borrowers find it increasingly hard to repay their debt due to slowdown in domestic demand,” the report said.

The rising debt in both the public and private sector is seen as a negative that could drag down the country’s economy, the fourth-largest in Asia, amid mounting concerns over the spreading eurozone debt crisis and a faltering recovery of the U.S. economy.

To rein in household debt, the country’s financial regulators asked commercial banks to limit the volume of loans extended and renewed.

By Yang Sung-jin (insight@heraldcorp.com)