Millions of Koreans Spend All Their Earnings Repaying Debt

  • By Kim Ji-seop

    July 11, 2023 08:17

    Almost 3 million people in Korea are in virtually bankrupt because they spend every penny they earn replaying their debts. Their number swelled by 360,000 during lockdown.
    According to the Bank of Korea, 19.77 million people owed money to banks as of the end of the first quarter of this year, and they borrowed a total of W1.85 quadrillion (US$1=W1,307).
    Some 2.99 million people or 15.1 percent had debt service ratios of more than 70 percent, which means the amount of principal and interest they must repay surpasses 70 percent of their annual earnings. Financial institutions consider a DSR of 70 percent as the Maginot Line where a borrower must spend more or less every penny they earn to finance their debt.
    More than a half of them or 1.75 million had DSR ratios surpassing 100 percent, meaning they are completely broke.
    The number of such borrowers has been increasing steadily since the pandemic started and rose by another 220,000 last year after the Bank of Korea hiked the base interest rate by more than two percentage points. But it declined by around 50,000 so far this year now the BOK has kept the rate frozen.
    Based on the amount borrowed, the proportion of borrowers whose DSR ratios surpasses 70 percent stood at 41.4 percent as of the end of the first quarter, with their combined debts rising by W86.5 trillion to W764.8 trillion over the last three years.
    Financial authorities are increasingly worried about debt delinquency. The BOK said in a report that the households' debt delinquency rate "could rise at a faster rate than expected" and urged financial authorities to "strengthen monitoring and guide people to borrow on fixed interest rates."
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