Loan Balances for Those Aged 60 and Over Significantly Higher Relative to Income... Increased Risk of Default

Korea Institute of Finance Report

[Asia Economy Reporter Seo So-jeong] Although the proportion of borrowers aged 60 and above with a high Debt Service Ratio (DSR) is similar to that of those in their 30s to 50s, the loan balances they hold are significantly higher relative to their income. Therefore, it is necessary to explore countermeasures to prevent excessive reduction in consumption capacity and deterioration of financial institutions' resilience during the deleveraging process.

Senior Research Fellow Kwon Heung-jin of the Korea Institute of Finance stated this in the report titled "Current Status and Implications of Household Debt Repayment Ability by Age Group" on the 4th, based on an analysis of Korea Credit Bureau (KCB) sample data on debt repayment ability by age group as of the end of the first half of this year.

For those in their 60s, the proportion of borrowers with a DSR between 40% and less than 50%, and those with a DSR of 50% or higher, were 5.3% and 12.7%, respectively, showing levels similar to those in their 30s to 50s. However, the share of loan balances held by these borrowers was very high compared to other age groups, at 9.6% and 32.2%, respectively. More than 40% of the total loans held by this age group were held by borrowers with a DSR higher than 40%.

The proportion of loan balances of those aged 70 and above with a DSR of 50% or higher, relative to the total loan balances of those aged 70 and above, was also the highest at 34.5%. This was significantly higher than the 30s (17.1%), 40s (20.0%), and 50s (22.8%).

As of the end of the first half of this year, the loan-to-income ratio (LTI) over the past six years for high DSR (DSR 50% or higher) borrowers aged 65?69 consistently exceeded that of high DSR borrowers aged 45?49. Furthermore, examining the six-year loan balances of high DSR borrowers aged 65?69 shows that despite being in a life cycle phase where loans are typically repaid, they have not been able to reduce their loan balances.

Senior Research Fellow Kwon pointed out, "Since those aged 60 and above have not only low current income but also low expected future income, smooth loan repayment may be difficult without active reduction in consumption expenditure or asset reduction and liquidation by borrowers aged 60 and above with high DSR." He added, "Given their large proportion in the population, a decrease in consumption capacity among borrowers aged 60 and above could lead to potential poverty."

He continued, "If repayment burdens increase or refinancing becomes difficult during income decline, it could directly lead to defaults. Therefore, it is necessary to strengthen monitoring of the income, consumption, and financial conditions of vulnerable elderly groups."

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