South Korea emerged as having the fourth-highest ratio of debt payments to income among major economies last year. (Image courtesy of Yonhap)
SEOUL, Jul. 8 (Korea Bizwire) – In a global comparison of household debt burdens, South Korea emerged as having the fourth-highest ratio of debt payments to income among major economies last year, according to data released by the Bank for International Settlements (BIS).
The report, published on July 7, reveals that South Korea’s debt service ratio (DSR) for the household sector reached 14.2% in 2023. This figure places the country behind only Norway (18.5%), Australia (18%), and Canada (14.4%) among the 17 major economies surveyed by the BIS.
The DSR, a key indicator of financial stress, measures the proportion of income that households must allocate to debt repayments. A higher DSR suggests that families face a greater burden in servicing their debts relative to their income.
The BIS, often referred to as the central bank of central banks, calculates and publishes quarterly DSR data for these 17 countries using national accounts.
Other nations with DSRs exceeding 10% include Sweden (12.8%), the Netherlands (12.4%), and Denmark (12.3%). The United Kingdom (8.7%), Finland (8%), the United States (7.6%), and Japan (7.5%) fall in the middle range, while countries like Germany (5.8%), Spain (5.7%), and Italy (4.4%) report lower ratios.
South Korea not only ranks high in terms of absolute debt burden but also in the pace at which this burden is increasing. The country’s DSR rose by 0.8 percentage points from 13.4% in 2022 to 14.2% in 2023. This increase was the fourth fastest among the surveyed nations, trailing only Australia (3.3 percentage point increase), Norway (3), and Canada (1).
The rapid ascent of South Korea’s DSR is particularly notable when viewed in a historical context. Prior to the COVID-19 pandemic, the country typically ranked fifth or sixth in these comparisons. However, as the era of ultra-low interest rates came to an end and borrowing costs began to climb steeply, South Korea’s position has risen to third or fourth place.
Extending the analysis to cover the post-pandemic period, South Korea’s DSR has increased by 2 percentage points since 2019, the third-largest jump after Norway (3.2) and Australia (2.9).
It’s worth noting that the BIS methodology may underestimate the actual debt burden. The calculations include households without financial debt in the income denominator and apply a standardized 18-year loan term when computing principal and interest payments. Despite these limitations, the BIS data remain valuable for tracking the speed of increasing debt burdens and making international comparisons.
To provide a more precise picture of the domestic situation, the Bank of Korea conducts its own calculations based on a household debt database. Their findings paint an even more concerning picture, with the average DSR for borrowers reaching 38.5% in the fourth quarter of last year, significantly higher than the BIS estimate.
M. H. Lee (mhlee@koreabizwire.com)
