[Multiple Debt Time Bomb] Household Debt Nears 600 Trillion... Both Parents and Children Trapped in Debt Abyss

Household Multiple Debts Totaling 599 Trillion Won at the End of Last Year
4.432 Million Multiple Debt Borrowers

[Asia Economy Reporter Kim Hyo-jin] Warning signs of household debt defaults caused by multiple debts have been triggered. Over the past two years, during which COVID-19 severely impacted the overall economy, the amount of household multiple debts has increased by nearly 80 trillion won, approaching 600 trillion won. The number of multiple debtors has increased by more than 160,000.

Not only self-employed individuals but also low-income and low-credit borrowers who cannot borrow from banks, as well as young people in their 20s and 30s, are caught in a vicious cycle of borrowing to repay debt. There are calls for urgent and meticulous management by the government and financial authorities for vulnerable borrowers with declining repayment ability.

According to data submitted and analyzed by Rep. Yoon Chang-hyun of the People Power Party from the credit rating agency NICE Information Service as of the end of last year, the amount of household multiple debts was 599 trillion won, and the number of multiple debtors was 4,432,225. Compared to the end of 2019, just before the full impact of COVID-19, the amount of multiple debts increased by 76 trillion won, and the number of multiple debtors increased by about 166,000.

From the end of 2017 to the end of 2019, over two years, the amount of multiple debts increased by 34 trillion won. The increase in household multiple debts over the two years after COVID-19 far exceeds twice the increase in the two years before COVID-19. Additionally, as of the end of last year, 22.2% of all household borrowers were multiple debtors, and by loan amount, 32.0% of the total loans were held by multiple debtors.

A significant portion of household multiple debtors is concentrated in the secondary financial sector, such as savings banks. According to a recent report titled "Characteristics of Individual Borrowers in the Savings Bank Sector" released by the Korea Credit Information Services, nearly 7 out of 10 savings bank credit loan borrowers last year were multiple debtors.

The proportion of multiple debtors in savings banks has steadily increased from about 60% in 2018 to 63% in 2019, 65% in 2020, and 66% last year. This far exceeds the less than 30% proportion of multiple debtors in commercial banks. Among them, 76% were medium-credit borrowers, and 21% were low-credit borrowers.

The noticeably increasing loan transactions of young people in their 20s and 30s with savings banks also raise concerns. Compared to those aged 40 and above, their lower financial capacity makes it easier for them to fall into the quagmire of multiple debts.

Currently, about 41% of borrowers using savings bank loans are in their 20s and 30s, nearly one in every two borrowers. The amount of savings bank credit loans for borrowers in their 20s and 30s increased from 4.1664 trillion won at the end of 2019 to 6.6156 trillion won as of the end of June last year.

The fact that these borrowers have borrowed from multiple financial institutions itself indicates weak repayment ability, and with the onset of a full-scale interest rate hike period, there is heightened vigilance regarding the impact they may have on overall financial soundness.

In particular, vulnerable groups directly affected by COVID-19 are highly likely to be rolling over their loans. This is why experts are concerned about a domino effect of defaults among multiple debtors.

Unavoidable Impact of Interest Rate Hikes Amid Concerns of Defaults from Secondary Finance and Youth

Moreover, with the Bank of Korea having announced additional base rate hikes this year, borrowers who have borrowed from the secondary and tertiary financial sectors are likely to experience rapid defaults across sectors if one sector becomes insolvent.

Professor Sung Tae-yoon of Yonsei University's Department of Economics pointed out, "How to manage the burden of multiple debtors going forward will be key to maintaining financial soundness." He added, "It is necessary not to manage only through financial measures such as repayment deferrals but to prepare policy support measures through fiscal means."

Professor Oh Jung-geun of Konkuk University's Department of Economics advised, "Based on a prompt assessment of repayment ability, it is necessary to guide financial institutions to appropriately enter stages such as debt adjustment and partial loan forgiveness."

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