[Bank of Korea Financial Stability Report] Young Adults in Their 20s and 30s' Household Loans Soar Due to 'Yeongkkeul' and 'Bittu'...

The Bank of Korea's '2020 Second Half Financial Stability Report'

[Sejong=Asia Economy reporters Kim Hyunjung and Kim Eunbyeol] Household loans among young people in their 20s and 30s are increasing at a faster rate compared to other age groups. This is largely due to the surge in asset prices following the COVID-19 pandemic, which has popularized 'Yeongkkeul (borrowing to the limit)' and 'Debt investment (borrowing to invest)' in real estate and stocks. Considering the slowdown in youth employment rates and the resulting income changes, concerns are rising that the debt repayment capacity of these age groups may decline.

On the 24th, the Bank of Korea stated in its 'Financial Stability Report for the Second Half of 2020' that "as of the end of the third quarter, household loans among young people increased by 8.5% year-on-year," noting that "this growth rate is faster than that of other age groups (6.5%)." A Bank of Korea official explained, "The main reasons for the increase in loans are the rising demand for monthly rent and home purchases, as well as expanded demand for stock investments," adding, "In particular, there was high demand for non-face-to-face unsecured loans and monthly rent deposit loans, which are more accessible to young people."

However, the Bank of Korea added that although household loans among young people are rising sharply, there is no significant concern about their debt repayment burden. The loan-to-income ratio (LTI) for young people rose sharply to 221.1% as of the end of September, but the debt service ratio (DSR) fell significantly to 35.6%, showing a downward trend compared to other age groups since 2017. A Bank of Korea official explained, "This is because young borrowers tend to have a higher proportion of bank loans with relatively low interest rates, and the increase was mainly in monthly rent deposit loans where only interest is paid." Although loans are increasing rapidly, interest rates and repayment burdens are relatively lower compared to other age groups. The delinquency rate for young people's household loans was also 0.47%, lower than that of other age groups (0.71%).

However, looking at the employment market conditions, it is difficult to view loans for these age groups with complete confidence. If income decreases due to worsening employment, loan repayment could become difficult.

Recently, the income conditions for young people have been deteriorating. According to the 'November Employment Trends' released by Statistics Korea, the employment rate for young people aged 15-29 last month was 42.4%, down 1.9 percentage points from the previous year. For those aged 20-24 and 25-29, who are typically graduating from vocational high schools or universities and entering their first jobs, the rates were 41.1% and 67.6%, respectively, down 3.5 and 3.4 percentage points from the previous year. This is the largest decline among all age groups tracked by Statistics Korea. In particular, the growth of industries with a high proportion of youth employment, such as manufacturing, is slowing, and new hiring is shrinking, worsening related indicators. According to a survey of listed companies by the job portal Incruit, the proportion of companies hiring new college graduates plummeted from 85.5% last year to 67% this year. Accordingly, the economically inactive youth population in November increased by 43,000 compared to the previous year, marking a second consecutive month of increase. The economically inactive population refers to people of working age (15 years and older) who are neither employed nor unemployed, meaning those who have the ability to work but either do not want to work or are unable to work at all.

In this regard, a Bank of Korea official advised, "The increase in household debt among young people is not yet a cause for major concern," but cautioned, "However, if the rapid growth trend continues, attention should be paid to the possibility of weakening debt repayment capacity."

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