Mounting household debts and the rapid pace of population aging in South Korea pose a threat to the local economy, according to a report by a global insurer.
Among nine Asian countries surveyed by the
Allianz Global Wealth Report 2017, South Korea, Asia’s fourth-largest economy, had the highest household debt to gross domestic product ratio at 95.8% in 2016. This is much higher than the average figure of the nine countries at 50.2%.
The other nations surveyed were: China, India, Indonesia, Japan, Malaysia, Singapore, Taiwan, and Thailand.
Private debt in South Korea also grew 10%, placing second behind India, which had 13.5%, reports Yonhap News Agency.
“While this could be classed as ‘catching up’ in the case of India (and in the case of China), the sustained strong growth in liabilities in South Korea is somewhat worrying in view of the country’s debt,” the report said.
Per capita liabilities in South Korea were at US$25,400 in 2016, in second place following Singapore’s US$7,196.
Debt made up 46.2% of gross financial assets of Korean households, which effectively cuts its gross financial assets per capita of US$62,000 almost in half. The debt-to-asset ratio was also the second-highest after Malaysia.
The report also took notice of the rapid aging of South Korea’s population over the next two decades. The country’s old-age dependency ratio, or the number of people aged 65 and above as a percentage of those between 15 and 64 years old, is seen to skyrocket from 18% in 2016 to almost 47% in 2035.
Life insurance and pensions are popular investments in South Korea, making up 32% of gross financial assets. Continued aging of the population is likely to put much pressure on these investments.
“The question arises of whether all households will manage to save sufficient assets before they reach pensionable age,” said the report, adding that there is “an urgent need for Korea to catch up in terms of development of financial systems and access to appropriate financial services.”
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