Savings Banks with Multiple Debts Increasing Due to Debt Rollover... 'Time Bomb' During Interest Rate Hike Period

Korea Deposit Insurance Corporation Publishes 'Financial Risk Review'
Savings Banks' Multiple Debtors Account for 67.6%
Half Borrowed from Three or More Non-Bank Institutions
Multiple Debtors' DSR Rises Sharply from 18.5% to 25.8%

[Asia Economy Reporter Song Seungseop] It has been revealed that the number of savings bank borrowers who have taken loans from three or more financial institutions due to financial difficulties has increased. In particular, half of the borrowers who borrowed money from non-bank institutions with relatively high interest rates to roll over their debts were identified. Their ability to repay debts is gradually deteriorating, raising concerns that middle- and low-credit multiple debtors could become a ticking time bomb for household debt.

According to a study titled "Current Status of Personal Credit Loans in Savings Banks and Risk Factor Analysis through Vulnerability Assessment of Multiple Debtors," jointly published by Baek Cheol, team leader at the Korea Credit Information Services, and Lee Paengheum, team leader at the Korea Deposit Insurance Corporation, in the Financial Risk Review by KDIC on the 1st, the proportion of multiple debtors in the savings bank sector reached 67.6% at the end of last year. This is an increase of 0.5 percentage points compared to the end of the previous year.

The credit loan amount from savings banks for multiple debtors who borrowed from three or more financial institutions accounted for about 78.1% of their total debt. This is up 0.9 percentage points from 77.2% a year earlier. In other words, more multiple debtors are borrowing more money. Among multiple debtors, those who borrowed from three or more non-bank institutions alone accounted for half (33.2%). These borrowers also had a higher rate of delinquency over 30 days compared to all multiple debtors.

The Number of Multiple Debtors Increases While Repayment Ability Worsens

The problem is that the repayment capacity of vulnerable multiple debtors is gradually deteriorating. Although the average credit rating of multiple debtors has steadily improved, the proportion of borrowers whose credit rating has declined or who remain in a low credit state below grade 7 remains high at around 41% annually.

The burden on multiple debtors has also increased. The debt burden of multiple debtors was estimated using the Debt Service Ratio (DSR) indicator, which measures the ratio of total debt principal and interest repayments. Last year, the proportion of multiple debtors with an increased DSR was 25.8%, rapidly rising from 18.5% the previous year. The DSR increases when the principal and interest payments increase or annual income decreases. This means that the repayment burden of principal and interest for multiple debtors who borrowed from savings banks has grown over time.

Team leader Baek warned, "We need to prepare for the possibility of defaults among low-income and non-bank multiple debtors," adding, "There is a possibility that latent defaults could materialize due to some liquidity shortages." He explained, "It is necessary to strengthen proactive risk management, especially focusing on multiple debtors with a high proportion of borrowers who have experienced delinquency over 30 days."

Team leader Lee also stated, "Since the proportion of savings bank borrowers holding overlapping loans is high, it is important to carefully examine to prevent the spread of defaults to other sectors," and diagnosed, "It seems necessary to check loss absorption capacity through stress testing."

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