Young Koreans see steepest rise in debt during the pandemic

[Photo by MK DB]

South Koreans in their 20s and 30s saw debt rise the most among the entire age groups over the past three years as they suffered financial difficulties due to soaring real estate and stock prices.

According to data submitted by the Bank of Korea to Representative Yang Kyung-sook of the Democratic Party on Sunday, the number of household loan borrowers stood at 14.9 million at the end of December last year, up 17.3 percent from the end of December in 2019 before the outbreak of the pandemic. The loan balance amounted to 902.2 trillion won ($674 billion), up 17.7 percent during the same period.

The outstanding balance of household loans in the non-banking sector also surged 8.7 percent to 509.1 trillion won during the same period. The non-banking sector includes savings banks, mutual finance firms, insurers, and credit firms.

By age, borrowers in their 20s and 30s saw the steepest rise in debt among the entire age groups.

The overall loans extended by the age group soared 27.4 percent to 514.5 trillion won in the fourth quarter last year, up from 404 trillion won in the fourth quarter of 2019.

The average amount of loans per borrower also increased the most among debtors in their 20s and 30s.

The average amount jumped by 18.4 percent to 70.81 million won in 2022 from 59.8 million won in 2019. Debtors in their 40s followed with 103.5 million won, 50s with 90.81 million won, and 60s and older with 77.25 million won.

The average amount of loans borrowed by those in their 30s from the non-banking sector rose 32 percent over the past three years to 54.1 million won.

By income, debt among the high-income earners increased more than those among the low-income counterparts in both banking and non-banking sectors.

In the banking sector, loans with high-income earners rose 15.6 percent from the pre-pandemic levels to 756 trillion won in 2022 while those with low-income earners rose 9.6 percent to 107.5 trillion won during the same period.

Both high and low-income earners witnessed similar loan growth rates in the non-banking sector, meaning borrowers with poor credit had to rely on non-banking institutions during the pandemic.

Concerns rise as an increase in loan default rates among the vulnerable borrowers in their 20s and 30s is considered one of the risky economic factors.

The overall default rate of the debtors in their 30s rose 0.1 percentage point to 0.5 percent as of the fourth quarter. The default rate in older groups also rose.

The BOK warned in its report last year that if internal and external conditions deteriorate, the repayment ability of vulnerable borrowers may decline, leading to a rise in credit risks.