[2020 National Audit] Half of Debt Among High-Risk Households Belongs to Self-Employed and Unemployed Families

Bank of Korea National Assembly Planning and Finance Committee Audit

[Asia Economy Reporter Kim Eun-byeol] It has been revealed that among high-risk households with a heavy burden of principal and interest repayment and difficulty in repaying debts even through asset sales, nearly 30% are self-employed or unemployed households. The financial debt they bear accounts for about half of the total financial debt of high-risk households.

According to data submitted by the Bank of Korea to Democratic Party lawmakers Kim Kyung-hyup and Kim Ju-young during the National Assembly's Planning and Finance Committee audit on the 16th, the number of high-risk households last year was 376,000, an increase of 72,000 households compared to the previous year (304,000 households). The proportion of high-risk households is about 3.3% of all households.

High-risk households refer to those whose Debt Service Ratio (DSR) exceeds 40%, indicating a heavy burden of principal and interest repayment, and whose Debt to Asset ratio (DTA) exceeds 100%, meaning it is difficult to repay debts even by selling assets.

The financial debt held by high-risk households reached 78.5 trillion won, increasing by more than 17 trillion won compared to 61 trillion won in 2018. The proportion of financial debt held by high-risk households relative to total financial debt also rose from 5.6% to 6.8% during the same period.

Among high-risk households, a significant number are self-employed or unemployed. Last year, self-employed households accounted for 111,000 households, or 29.5% of high-risk households. Unemployed high-risk households numbered 52,000, accounting for 13.8% of all high-risk households. Thus, self-employed and unemployed households make up about 43.4% of high-risk households, representing a substantial portion.

In terms of financial debt size, self-employed high-risk households hold 35.6 trillion won in financial debt, and unemployed high-risk households hold 4.4 trillion won, together accounting for about 51% of the total financial debt of high-risk households.

In particular, due to the recent COVID-19 pandemic, self-employed individuals have been severely impacted, and the number of unemployed has increased, so their debt burden is expected to grow further.

The number of vulnerable borrowers (multiple debtors with three or more loans from financial institutions who have low credit ratings (grades 7-10) or belong to the bottom 30% income bracket) has decreased this year, but their proportion relative to the total number of borrowers remains similarly high. As of the second quarter, there were 1,324,000 vulnerable borrowers, accounting for 6.8% of all borrowers. The proportion was 7.1% last year and 7.7% in 2018.

Looking at the principal and interest burden relative to household income by age group, it was found that the debt burden among younger generations is increasing. According to data submitted by the Bank of Korea to People Power Party lawmaker Ryu Seong-gul, the proportion of households with a household head aged 20 or younger and a DSR of 40% or higher rose to 11.3% last year. It was about 7.0% in 2018, increasing by more than 4 percentage points in just one year. For households in their 30s, the proportion was 20.1%; 40s, 17.3%; 50s, 13.7%; and 60s, 8.9%. While the proportion of households with a DSR over 40% decreased among those aged 30 and above, it increased only among those in their 20s. As younger generations increasingly take on debt to buy homes, their debt burden appears to be growing.

This content was produced with the assistance of AI translation services.