COVID-19 Debt Crisis... 90,000 'Multiple Debtors' Surge in Six Months

Due to Increased Debt Rollover... Over 4.36 Million People in the First Half of This Year

[Asia Economy Reporter Kwangho Lee] The number of "multiple debtors"?those who owe money to three or more financial institutions?has surged by nearly 100,000 in just half a year. This increase is attributed to the rise in "rolling over" debts among self-employed individuals hit hard by the prolonged COVID-19 pandemic, young people struggling to find jobs, and the unemployed.

These individuals often borrow from the second-tier financial sector (savings banks, credit cards, capital companies) or the third-tier financial sector (loan companies) with higher interest rates because they cannot secure loans from the first-tier financial sector (banks). Their low repayment capacity has led them to be called a "household debt time bomb." This is why there are calls for financial authorities to actively manage and supervise multiple debtors by categorizing them according to risk levels.

According to the "Status of Household Multiple Debtors" submitted by the Financial Supervisory Service to Yoon Chang-hyun, a member of the National Assembly's Political Affairs Committee from the People Power Party, the number of multiple debtors in the first half of this year was 4,360,137, an increase of 92,275 compared to the end of last year (4,267,862).

This is the first time that the number of multiple debtors has increased by nearly 100,000 in just half a year. It is expected that the annual increase will set a record high by the end of this year.

During the same period, the loan amount for multiple debtors reached 583 trillion won, up 29 trillion won from 553 trillion won at the end of last year. This is significantly faster than the 31 trillion won increase over the past year.

Not all multiple debtors belong to vulnerable groups, but they have a higher likelihood of non-performing loans compared to non-multiple debtors. Low-income earners are particularly at risk compared to high-income earners.

Analyzing the distribution of household multiple debtors by borrower annual income brackets, there were 76,295 multiple debtors with an annual income between 30 million won and less than 60 million won, nearly three times higher than the 27,587 debtors with an income between 60 million won and less than 90 million won.

Even when calculated in 10 million won increments, those earning between 40 million won and less than 50 million won numbered 37,403, the highest among the groups. Those earning between 80 million won and less than 90 million won were only 6,007.

Rep. Yoon emphasized, "Multiple debtors with low repayment capacity could become a household debt time bomb during periods of rising interest rates," adding, "Financial authorities need to manage, supervise, and implement detailed policies."

Professor Sung Tae-yoon of Yonsei University's Department of Economics advised, "Most multiple debtors have loans from the second-tier financial sector with high interest burdens, which could ignite financial instability. Since both quantitative increases and qualitative deterioration are ongoing, active incentives and debt restructuring efforts are necessary."

A financial sector official said, "If financial authorities begin debt restructuring efforts for multiple debtors, they are likely to utilize the debt adjustment programs of the Credit Recovery Committee," adding, "During the global financial crisis, the pre-workout system was introduced to alleviate the debt burden of multiple debtors."

At that time, financial authorities implemented the pre-workout system through agreements between the Credit Recovery Committee and financial institutions to adjust debts before short-term delinquents under three months became financial defaulters. However, not all debtors with less than three months delinquency were offered debt adjustments. Those with assets valued at 600 million won or more (based on official housing prices) and debts exceeding 500 million won were excluded from debt adjustment. Additionally, debt adjustments were only provided if the debt incurred within six months before the application was less than 30% of the total debt, the debt-to-income ratio (DTI) was 30% or higher, and it was recognized that normal repayment was difficult without debt adjustment due to business suspension, closure, disasters, or income reduction.

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