© Reuters. More than 100 trillion won in household excess savings over three years of Corona… “Deposits and stocks without consumption”
Customers are receiving counseling at a bank counter in Seoul. Source = Economic Review DB
An analysis has emerged that Korean households have saved more than 100 trillion won more than before while experiencing the Corona 19 crisis for about three years.
This is because income has increased and government support has been added in a situation where consumption is forcibly restricted due to quarantine.
Concerns have also been raised that if such excess household savings flow into the housing market, deleveraging of household debt will be delayed, which could negatively affect financial stability.
According to the “Analysis and Evaluation of Household Excess Savings after the Pandemic” report released by the Bank of Korea on the 24th, the scale of excess savings in the household sector over the three years of the Corona 19 pandemic (2020-2022) is estimated at 101 to 129 trillion won. This is equivalent to 4.7 to 6.0 percent of nominal GDP and 9.7 to 12.4 percent of private consumption.
In this analysis, excess saving was defined as household savings above pre-pandemic trends. In the end, it means that household savings have increased by at least 100 trillion won more than the usual level in the past as a result of the Corona 19 crisis.
The reasons for the increase in excess savings were the decrease in consumption right after the pandemic and the increase in income last year.
Even in the results of decomposing the increase in the savings rate according to the motive for saving, ‘involuntary factors’ such as consumption restrictions due to Corona 19 accounted for more than half.
Households can use these abundant savings to finance consumption, pay off debt, or acquire assets. Instead of using this ‘excess savings’ to pay off loans, households mainly used it to build financial assets such as savings and stocks. It is also estimated that the portion used as an additional consumption source was not large.
Analysts say that there were not many cases of spending by breaking down savings because the income conditions were good thanks to the government support added to the favorable employment trend that continued until last year. Between 2020 and 2022, nominal household disposable income increased by an average of 4.6%, which was higher than the 2017-2019 period (3.6%) before the pandemic.
Jo Joo-yeon, manager of the BOK’s trend analysis team, said, “Debt repayment incentives have increased with rising interest rates, but household deleveraging (borrowing reduction and repayment) in Korea has been relatively slower than in major countries.”
Instead, households were presumed to hold excess savings mainly in the form of liquid financial assets such as deposits and stocks.
According to the statistics of the Bank of Korea’s national accounts, the financial assets of Korean households increased by 1,006 trillion won between 2020 and 2022, mainly in cash, deposits, stocks, and funds. It is almost double that of 2017-2019 (591 trillion won).
“During the pandemic, households have accumulated over 100 trillion won in excess savings and hold it in the form of financial assets,” said Cho.
2023-07-24 15:44:43
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