Multiple Debtors' Loans Reach 518 Trillion Won 'Snowball'... "Concerns Over Economic Crisis Trigger" (Comprehensive)

4.23 Million Multi-Debtors with Loans from 3 or More Financial Firms
Sharp Increase of 79 Trillion KRW and 14,000 People in Last 4 Years
Experts: "Financial Authorities Must Proactively Manage Vulnerable Borrowers"

[Asia Economy Reporters Kwangho Lee, Kiho Sung, Seungseop Song] The total loan amount of multiple debtors who roll over debt with more debt has reached 518 trillion won. In particular, the number of multiple debtors under the age of 30, mostly consisting of those who engage in Yeongkkeul (pulling together all their resources) and Debt Investment (debt-financed investment), has exploded, highlighting the need for special management by financial authorities.

According to the '2017-2020 Multiple Debtor Statistics' submitted by the Bank of Korea to Yoon Chang-hyun, a member of the National Assembly's Political Affairs Committee from the People Power Party, as of the end of last year, there were 4.236 million multiple debtors with a total loan amount of 517.6 trillion won. This means an average borrowing of 122.19 million won per person.

Multiple debt refers to borrowing money from three or more different financial institutions. Typically, when borrowers cannot obtain loans from the primary financial sector (banks), they turn to the secondary financial sector (savings banks, card companies, capital companies) or tertiary financial sector (loan companies) which have higher interest rates, making it a potential trigger for household debt defaults.

The loan amount of multiple debtors has increased sharply in recent years. It expanded from 438.9 trillion won at the end of 2017 to 466.1 trillion won at the end of 2018, and 479.2 trillion won in 2019.

As of the end of last year, it increased by 78.7 trillion won (17.9%) over four years. The number of multiple debtors also surged from 4.042 million in 2017, 4.166 million in 2018, to 4.222 million in 2019, and increased by 14,000 from the previous year last year.

Especially, the number of multiple debtors under the age of 30 increased significantly. As of the end of last year, the proportion of multiple debtors under 30 was 25.2%, the second highest after those in their 40s at 32.7%. Those in their 50s and 60s or older accounted for 29.1% and 13.0%, respectively.

Assemblyman Yoon Chang-hyun: "Multiple debtors with low repayment ability could become a trigger for household debt in the future"

However, compared to the previous quarter, the proportion of those in their 40s (33.3%) and 50s (29.8%) decreased, while those under 30 (23.9%) increased by 1.3 percentage points. This is interpreted as the influence of the debt rollover led by the Yeongkkeul and Debt Investment craze among those under 30.

The increase in multiple debtors among high-income earners is also notable. Looking at the composition of multiple debtors by income level, last year, high-income earners (top 30%) accounted for 65.7%, the only group to increase by 0.2 percentage points compared to the previous quarter. Middle-income earners (30-70%) accounted for 24.9%, and low-income earners (bottom 30%) accounted for 9.4%, slightly down from 25.0% and 9.5%, respectively, during the same period.

Assemblyman Yoon Chang-hyun pointed out, "Multiple debtors with low repayment ability could become a trigger for household debt during the upcoming interest rate hike period, so financial authorities need to manage, supervise, and implement detailed policies."

Experts also pointed out that the quality of debt has deteriorated as the proportion of multiple debtor loan balances and the average loan amount per person increased within total household loans. They explained that once the government's COVID-19 loan maturity extensions and interest payment deferrals end and full-scale interest rate hikes occur, multiple debtors could become a trigger for household debt defaults. Calls are growing for financial authorities to classify multiple debts by risk level and actively manage and supervise them.

Last year, the average loan amount per multiple debtor was 122.19 million won, an increase of 13.61 million won from 2017 (108.58 million won). It has been increasing annually from 108.58 million won in 2017, 110.81 million won in 2018, to 113.50 million won in 2019. During the same period, the proportion of multiple debtors within household loans (1,630.2 trillion won) reached 31.8%.

The increase in multiple debtor loan amounts and borrowers is inevitably due to a surge in self-employed individuals who suffered from COVID-19, closed their businesses, or faced difficulties in operating, as well as young people and unemployed individuals who could not find jobs, leading to a situation where debt is repaid with more debt. In fact, in the fourth quarter of last year, the number of personal workouts (for debtors overdue by 90 days or more) was 23,912, an increase of 1,889 from 22,023 a year earlier. The total number of applicants last year was 99,486, a 6% increase from 93,291 a year earlier. The number of people who applied for expedited debt adjustment with the Credit Recovery Committee last year was 2,098, up 1,166 from 932 a year earlier. Expedited debt adjustment is a debt restructuring for multiple debtors who have no overdue payments or overdue days less than 30. Despite borrowing from multiple financial institutions, borrowers who could not repay on time and requested interest payment deferrals or installment repayments have rapidly increased.

Increase in multiple debtors under 30... interpreted as influenced by Debt Investment and Yeongkkeul

Many self-employed businesses also closed their doors. Although their business scale is small and their financial debt is not large, their debt-to-income ratio is very high. According to the National Tax Service's 'National Tax Statistics,' 852,572 individual businesses closed in 2019, an increase of 21,688 from 830,884 the previous year. Among all individual business closures, the highest proportion by business type was service industry at 21.10% (179,906), followed by retail at 20.25% (172,645), and restaurants at 18.48% (157,595). Considering that 175,627 businesses opened restaurants, it means that for every new restaurant opened, an existing one closed. Particularly, retail and restaurant industries are sectors where livelihood-type households are concentrated among the self-employed. Many are pushed to the brink. According to the Supreme Court, the number of personal bankruptcy filings last year was 50,379, an increase of 4,737 from 45,642 a year earlier, the largest in the past five years. Bankruptcy filings surged sharply after June, following the first wave of COVID-19.

Also, considering the significant increase in multiple debtors under 30 and among high-income groups, the Debt Investment and Yeongkkeul craze are considered key factors. According to the Bank of Korea, household credit balance reached a record high of 1,726.1 trillion won at the end of last year. Household credit includes household loans from banks, insurance companies, securities firms, savings banks, and sales credit such as credit card installments. The Bank of Korea analyzed that borrowing was sourced extensively to purchase stocks and real estate. If stock and real estate prices fall, it is highly likely to lead to loan defaults.

Experts warn that if interest rates rise significantly, the default problem among multiple debtors and low-income groups could become a trigger for household debt. In particular, since multiple debtors account for 30% of household loans, there are concerns that this could be a hidden threat that shocks the real economy.

Professor Oh Jung-geun of Konkuk University's Department of Economics said, "Multiple debtors usually borrow first from commercial banks and then refinance with higher-interest secondary financial institutions, so they will be hit immediately when interest rates rise," adding, "The crisis of 'multiple default borrowers' could escalate into a financial crisis." Professor Kim Sang-bong of Hansung University's Department of Economics emphasized, "Multiple debtors who borrow for living expenses are more dangerous because they have no assets to liquidate," and "We should not be complacent just because the proportion of high-income earners has increased." According to Professor Kim, the rapid increase in multiple debtor loan amounts is a 'clear trigger of an economic crisis.'

Experts: "Vulnerable borrowers should be identified and proactively managed"

To minimize the risk of defaults centered on multiple debtors, experts have pointed out the need to identify vulnerable borrowers and manage them proactively. Professor Kim So-young of Seoul National University's Department of Economics said, "There seems to be no short-term solution to the accumulated debt of multiple debtors due to COVID-19," advising, "If there is a long-term recovery capacity and the ability to repay debt, additional credit supply should be provided; if principal repayment is uncertain, management is necessary." Professor Oh also expressed concern, saying, "Among borrowers whose loan maturities were extended by financial authorities, some cannot even pay interest, and these people will have difficulty repaying even after COVID-19 ends," adding, "Since they are classified as performing loans, defaults are hidden, and banks delay appropriate responses." He further stated, "It is time for the government and financial authorities to take an active stance on debt restructuring."

There are also opinions that it is still too early to talk about a crisis. Senior Researcher Lim Hyung-seok of the Korea Institute of Finance said, "Banks lent money judging that people with good credit in a liquidity-rich environment," and argued, "Although U.S. bond yields are rising, borrowing costs are more important for multiple debtors, so it is premature to discuss defaults."

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