"Borrowed from Three or More Lenders": Share of Multiple-Debt Borrowers Hits 10-Year High

[Financial News]  The share of borrowers with loans from three or more financial institutions rose to its highest level in a decade in the second quarter of this year. Although the average loan balance per borrower fell, more people owed money to multiple financial institutions. Repayment burdens also increased for vulnerable borrowers with low incomes or poor credit.

According to data submitted by the Bank of Korea (BOK) to Lee Jong-wook, a People Power Party lawmaker and member of the National Assembly Finance and Economic Committee, the share of multiple-debt borrowers stood at 23.7% in the second quarter of this year. It rose from 23.5% at the end of last year to 23.6% in the first quarter of this year, then climbed again to its highest level since 2016.

The average loan balance held by each multiple-debt borrower was 122.17 million won, down about 700,000 won from 122.88 million won at the end of last year. However, that figure was about 24 million won higher than the average of 97.90 million won for all borrowers. Loans held by multiple-debt borrowers accounted for 29.6% of total household loans. They represented about one-quarter of all borrowers but held nearly 30% of the total loan balance.

Their repayment burden was far heavier than that of all borrowers. The average total debt service ratio (DSR) for multiple-debt borrowers was 52.9%, 16.9 percentage points higher than the 36.0% average for all borrowers. The DSR is the share of annual income used to repay loan principal and interest over a year. The average DSR for vulnerable borrowers—those in the bottom 30% by income or with credit scores of 664 or below—rose to 59.3%, meaning they were using about 60% of their annual income to repay principal and interest.

Among the self-employed, delinquency rates were particularly high for vulnerable borrowers who had both multiple debts and low incomes or poor credit. According to the BOK's Financial Stability Situation report released on the 22nd, the delinquency rate on loans held by vulnerable self-employed borrowers stood at 12.71% at the end of the second quarter of this year—more than six times the 1.99% rate for all self-employed borrowers. The number of vulnerable self-employed borrowers also increased from 404,000 at the end of last year to 411,000.

Recent increases in the base rate have added to the burden on borrowers with weakened repayment capacity. The BOK raised the base rate by 0.25 percentage points in both July and August, bringing it to 3.00% per year. If the higher rate is reflected when existing loans are repriced or their maturities extended, interest burdens could rise further.

The impact of higher interest rates was found to emerge more quickly among vulnerable borrowers. An analysis of data from the first quarter of 2012 through the second quarter of this year estimated that delinquency rates among vulnerable borrowers responded most strongly around nine months after a base-rate increase. This was earlier than the peak impact on overall household bank lending, which occurred about 15 months later. The BOK analyzed that borrowers with insufficient income and financial assets may struggle to absorb higher interest costs, causing their creditworthiness to deteriorate and refinancing conditions to worsen. Such developments could, in turn, increase the risk of delinquency.


[email protected] Han Seung-gon Reporter