The Korean Economic Forum
Recent Trends and Risk Assessment of Household Debt in Korea
Young-Il Kim (NICE Information Service)Year 2023Vol. 16No. 1
AbstractThis study analyzed the impact of recent changes in the macroeconomic environment on household debt insolvency risk by using CB data that can identify the most recent loan status by borrower and the Survey of Household Finances and Living Conditions that can identify financial status by household. It was confirmed that interest rate hikes, housing market slowdown, and sluggish incomes acted as factors that increased the insolvency risk of borrowers with household loans. This suggests that the household loan delinquency index will continue to rise during this year, following last year, considering the economic outlook for this year. As a result of analyzing the repayment capacity of indebted households based on cash flow and net assets by household, it was found that among indebted households, there were many households with weak cash flow, but in terms of net assets(equity capital), they secured repayment capacity above a certain level. Although the household loan delinquency index may rise rapidly in the short term due to the macroeconomic tightening policy, the trend is likely to be somewhat gradual as the technical and institutional factors that have led to the long-term downward trend in the delinquency index are expected to remain in effect. Meanwhile, as uncertainty in the financial market has recently increased, it seems imperative to check and respond to the possibility that the liquidity supply function of financial institutions may shrink, which could increase the risk in the household loan market. Of course, we cannot rule out the possibility that the risk of insolvency will greatly increase in some financial institutions and loan products due to the rapidly changing macro environment, so monitoring and management using timely data is necessary for borrowers, financial institutions, and loan products with high vulnerabilities in particular. The analysis in this paper is expected to provide meaningful implications for timely inspection and management of household debt risks that have recently emerged.