Borrowing to Repay Debt 'Dollyeomakki'... Record High Number of Multiple Debtors

The number of multiple debtors who borrowed from three or more financial institutions reached an all-time high as of last year. The increase in this financially vulnerable group is pointed out by financial authorities as potentially leading to an economic downturn.

According to the "Status of Multiple Debtor Household Loans" data submitted by the Bank of Korea to Yang Kyung-sook, a member of the National Assembly's Planning and Finance Committee from the Democratic Party of Korea, as of the end of the third quarter last year, the number of multiple debtor household loans in South Korea was confirmed to be 4.5 million.

This figure was derived from the Bank of Korea's analysis of its own household debt database. The 4.5 million represents an increase of 20,000 from the previous quarter (4.48 million in Q2 2023), marking a record high. The proportion of multiple debtors among all household loan borrowers (19.83 million) also reached a historic high of 22.7%.

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Since they are most vulnerable to high interest rates, they are the focus of intensive monitoring and management by the Bank of Korea and financial authorities. In fact, the average delinquency rate of multiple debtors is also rising, estimated at 1.5% as of the end of the third quarter last year. This is the highest figure in four years since Q3 2019 (1.5%).

The average total debt service ratio (DSR) of multiple debtors was found to be 58.4%. The DSR is an indicator that measures the proportion of a borrower's total financial debt principal and interest burden relative to their income. It is calculated by dividing the principal and interest repayment amount that the borrower must pay in one year by their annual income. In other words, a DSR of 58.4% means that about 60% of income is spent on principal and interest repayments.

Typically, a DSR exceeding 70% classifies a borrower as a "marginal borrower." This means that most of the income, excluding minimum living expenses, must be used for principal and interest repayments. Already, 26.2% (1.18 million) of multiple debtors have a DSR exceeding 70%, and 14.2% (640,000) exceed 100%.

In its financial stability report at the end of last year, the Bank of Korea warned, "The credit quality of loans in vulnerable sectors is deteriorating," and "An increase in borrowers with high DSRs leads to reduced consumption, which can constrain household consumption in the long term and reduce economic vitality."

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