Vulnerable Debt Group
According to the Bank of Korea, people with multiple loans, that is, loans taken out from at least three financial institutions, accounted for 30.7% of the total outstanding household loans at the end of September this year. Given that the outstanding loans total 1,227.9 trillion won (US$1,105 billion), those debtors have to repay approximately 377 trillion won (US$339 billion).
The more vulnerable group of debtors with multiple loans, that is, those with less income or lower credit ratings, had a total borrowing of 78.6 trillion won (US$70.7 billion) as of that time, equivalent to 6.4% of the total household liabilities. 1,467,000 borrowers were classified into this group as of the end of September.
In this group, the ratio of non-banking loans of those with the seventh- to tenth-highest credit ratings amounted to 74.2%. Specifically, debtors with those credit ratings recorded a total loan of 90.8 trillion won (US$81.7 billion) and 67.4 trillion won (US$60.6 billion) out of the total was in the non-banking sector. Likewise, the ratio of those with high-interest credit loans to the debtors constituting this group was as high as 17.3% whereas the overall average stood at 3.5%.
It has also been found that the ratio of floating rate loans is still as high as 71.6% of the total household loans in the banking sector in spite of the financial authorities’ efforts to improve the quality of household debts. According to the Korea Federation of Banks, the average mortgage loan rate of the five major South Korean banks increased from 3.0% to 3.28% last month. According to the Bank of Korea, a one percent increase in this rate causes households’ interest repayment burden to increase by nine trillion won (US$8.1 billion) a year.