Soaring corporate debt in South Korea linked to real estate boom, Bank of Korea reports

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20th May 2024 – (Seoul) New data released by the Bank of Korea (BOK) on Monday reveals a significant surge in South Korea’s corporate debt, with total figures reaching 2,734 trillion won ($2 trillion) by the end of 2023. This marks a substantial increase of 1,036 trillion won ($762 billion) over the past six years, predominantly driven by the robust demand within the real estate sector.

The BOK’s figures show an annual average growth rate of corporate debt at 8.3 per cent, which starkly contrasts the country’s nominal GDP growth rate of just 3.4 per cent annually during the same period. Consequently, the ratio of corporate debt to nominal GDP has expanded from 92.5 per cent at the end of 2017 to 122.3 percent by the close of 2023.

The primary catalyst for this escalation in corporate borrowing has been identified as the booming real estate market, which has significantly increased the sector’s demand for debt. Additionally, the COVID-19 pandemic contributed to heightened debt levels among micro-business owners and small merchants seeking to navigate the economic challenges imposed by the health crisis.

The demand for operating and facility funds from industrial companies has also seen a notable increase since 2020, further exacerbated by the economic slowdown experienced across the country.

Despite these increases, the Bank of Korea noted a slowdown in corporate debt growth to 4.5 per cent year-on-year in 2023. This deceleration is attributed to a faltering housing market and rising interest rates, which have collectively dampened the demand for new debt.