November 30, 2024

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A Standard Chartered Bank Korea branch in Seoul advertises loan products (Yonhap)

South Koreans in their 40s and 50s now face higher chances of loan default and delinquency, with those who took out loans from more than one financial institution increasing by nearly 100,000 from last year, data showed Thursday. This has spurred concerns that a significant number of borrowers in those age groups could be taking out additional money to repay existing debts, with aggressive rate hikes in recent months requiring them to pay more in interest. 

Borrowers in their 40s and 50s who took out loans from multiple financial institutions came to 2.56 million as of end-March, gaining 80,691, or 3.2 percent, on-year, according to a Financial Supervisory Service data released by a lawmaker.

Rep. Jin Sun-mee of the Democratic Party of Korea warned that the borrowers’ decision to “rob Peter to pay Paul” could lead to higher risks of massive loan defaults and delinquency, with the age groups considered the backbone of the retail loan business here.

“We must monitor borrowers that repay a debt by taking out additional loans with concerns, as the recent rate hikes have led to an increase in repayment burden and could lead to higher delinquency rates,” Rep. Jin Sun-mee of the Democratic Party of Korea said in a statement.

“The weak debt repayment capacity of borrowers in their 40s and 50s could develop into a bigger economic risk,” she added.

The Bank of Korea last week raised its benchmark interest rate by a historic 50 basis points to 2.25 percent to combat high inflation. It marked the sixth pandemic-era rate hike since August last year, when the BOK decided to end more than a year of a record-low interest rate of 0.5 percent. The US Federal Reserve’s aggressive monetary tightening has been pushing the BOK to take a more hawkish stance.

Furthermore, the data showed that the debt taken out by those in their 40s and 50s accounted for 54.3 percent of all household loans extended by financial institutions here. Loans extended to the age groups amounted to 1,014.1 trillion won ($773 billion) as of end-March.

Of the 1,041.1 trillion won, money extended by banks increased 3.3 percent on-year to 592.1 trillion won, while loans extended by other financial institutions such as brokerages, insurers and savings banks -- which tend to offer products with higher interest rates -- gained 6.1 percent to 421.8 trillion won in the same period.

By Jung Min-kyung (mkjung@heraldcorp.com)