The key chart

The key messages

As the COVID-19 pandemic hit Asia, the risks associated with the level, growth and affordability of debt varied considerably across the region.

The divergence in debt levels in Asia is well known – in relation to BIS “threshold levels”, Korea has relatively high levels of HH and NFC debt, Australia and New Zealand relatively high levels of HH debt, and Hong Kong, China, Singapore and Japan have relatively high levels of NFC debt.

The level of debt is only one part of the story, however, and the risks involved are understood better, when the level of debt is compared to its growth rate. For EM as a whole, the risks associated with “excess credit growth” increased in 4Q19, but remained much lower than in previous cycles. The striking feature in Asia is that relatively high excess growth risks are concentrated in economies where debt levels are already relatively high (Hong Kong, Korea and, to a lesser extent Singapore).

Across EM, excess growth risks have shifted from the NFC to the HH sector. In China, Hong Kong and India, the CAGR in HH credit has exceeded the CAGR in nominal GDP by 6ppt over the past three years. In 1Q20, China’s HH credit growth has slowed in absolute terms but has outstripped nominal GDP growth resulting in a further increase in the HH debt ratio from 54% in 4Q19 to 62% in 1Q20. Indian HH debt, largely housing finance, also continued to grow strongly in 1Q20 but slowed more clearly in April 2020.

Finally, the risks associated with the affordability of debt are elevated in Hong Kong and China where debt service ratios are high in absolute terms and in relation to their historic LT trends.

Asia remains a very heterogeneous region in terms of debt dynamics and associated risks, but the key central focus remains on the Chinese and Indian HH sectors.

Please note that the summary comments above are extracts from more detailed analysis that is available separately

The other key charts