In the first quarter of this year, household surplus funds approached 93 trillion won, setting a record high. This is attributed to the influx of year-end bonuses and a decrease in the supply of new apartment move-ins. However, the Bank of Korea expects that in the second quarter, the real estate market in the metropolitan area will be stirred due to the temporary lifting of the land transaction permit system, leading to a decrease in household surplus funds.
According to the ‘first quarter fund circulation (provisional)’ released by the Bank of Korea on the 8th, the net fund operation scale of households and non-profit organizations in the first quarter of this year was recorded at 92.9 trillion won, an increase of 30.3 trillion won compared to the previous quarter (62.6 trillion won). This is the largest ever recorded on a quarterly basis, 1 trillion won more than the previous record of 92.8 trillion won in the first quarter of 2023.
Net fund operation is calculated as the amount of money (fund operation) held in deposits, bonds, insurance, pensions, etc., minus loans from financial institutions (fund sourcing). If the difference is positive (+), it indicates that there are surplus funds for net operation, while if it is negative (-), it indicates that there is a lack of funds so net sourcing has occurred.
It is interpreted that the scale of fund operation increased as the scale of fund sourcing grew at a larger rate. In the first quarter, the scale of fund operation for households and non-profit organizations was 101.2 trillion won, an increase of 30 trillion won compared to the previous quarter. The increase was centered around deposits with financial institutions, equity securities, and investment funds. The scale of fund sourcing recorded 8.2 trillion won, a decrease of 4 trillion won compared to the previous quarter. The increase in borrowing slowed down due to the decrease in new apartment move-ins.
As the scale of household fund sourcing decreased, the household debt ratio relative to nominal gross domestic product (GDP) in the first quarter was recorded at 89.4%, down 0.2 percentage points from 89.6% in the fourth quarter of last year. The household debt ratio has shown a downward trend since the 94.1% recorded in the second quarter of 2023, including ▲94.0% in the third quarter of 2023 ▲93.0% in the fourth quarter of 2023 ▲91.3% in the first quarter of 2024 ▲90.4% in the second quarter of 2024 ▲90.2% in the third quarter of 2024 ▲89.6% in the fourth quarter of 2024.
However, in the second quarter of this year, there is a high possibility of an increase in household debt due to the increase in real estate transactions. Kim Yong-hyun, Head of the Fund Circulation Team at the Bank of Korea, noted, "In the situation where household surplus funds expand in the second quarter, it is expected that the lifting of land transaction permit areas will lead to an increase in housing transactions, particularly in the metropolitan area, resulting in an expansion of household debt increases."
Corporations were in a net fund sourcing state where fund sourcing was greater than fund operation. In the first quarter of this year, the net fund sourcing scale was 18.7 trillion won, an increase of 2.5 trillion won compared to the previous quarter. Although investment has continued to slow down due to growing domestic and external uncertainties and worsening economic conditions, the demand for corporate working capital increased due to the payment of bonuses, which led to an increase in the net fund sourcing scale.
The government reported that net fund sourcing was 40.2 trillion won, an increase of 36.3 trillion won compared to the previous quarter. In the fund operation sector, increases in deposits with financial institutions and equity securities reversed to an increase, while in the fund sourcing sector, an increase in government bond issuance and financial institution borrowing switched from net repayment to net borrowing.
Kim noted, "Typically, in the first quarter, the government tends to increase sourcing for expenditures due to advance financing, so there is an aspect of increased sourcing. While the scale of the government's net fund sourcing has decreased compared to the same period last year in the first quarter, it is expected to rise in the future due to the impact of executing the supplementary budget."
In the first quarter of this year, the domestic sector's net fund operation scale combining households, corporations, and the government amounted to 18.5 trillion won, halved compared to the previous quarter (41 trillion won). The net fund sourcing scale in the foreign sector was recorded at 18.5 trillion won. This was due to an increase in non-resident investments in domestic bonds, leading to a larger increase in fund operation.
Meanwhile, as of the end of the first quarter of this year, Korea's non-financial sector (households, corporations, and the government) has a net financial worth of 4,617.2 trillion won. The ratio of financial assets to financial liabilities was 1.58 times, slightly down from the previous quarter (1.59 times). The financial assets of the non-financial sector amounted to 1,253.23 trillion won, while financial liabilities totaled 791.51 trillion won.