[이코노미스트 이용우 기자] The delinquency rate on domestic household loans has recently been on the rise. Although still maintaining a low level, it was found that the asset soundness of non-bank financial institutions such as savings banks is deteriorating.
On the 23rd, the Bank of Korea released data on ‘financial stability’ and diagnosed that concerns over the risk of insolvency in the household sector had grown as the delinquency rate of household loans had gradually risen across the financial sector since the second half of last year.
According to the Bank of Korea, the risk of insolvency across households is low so far, but the possibility of insolvency for high-risk households with excessive debt repayment burdens and insufficient capacity to repay debts through asset disposal is high. In addition, the BOK assessed that there are concerns that the scale of delinquencies in household loans in some non-banking business sectors will increase rapidly.
According to the Bank of Korea, the average total debt repayment ratio (DSR) of all households in Korea rose from 29.4% in 2021 to 34.5% in February this year. The average for self-employed households reached 40%. DSR refers to the ratio of principal and interest payments of total financial liabilities to income, and an increase in this ratio means that the burden of interest on loans has increased accordingly.
The debt-to-asset ratio (DTA) was 84.8% and 86.8% for households with total financial debt and self-employed households, respectively, which were distributed below 100%. This means that the debt-to-asset ratio is not high, which means that the company can afford to prepare for the shock of an economic downturn.
However, the BOK diagnosed that high-risk households with high DSR and DTA levels are more likely to default on household loans as these indicators have increased since last year due to an increase in interest burden and falling asset prices. High-risk households refer to households with DSR and DTA above 40% and 100%, respectively.
The average DSR and DTA of these households increased from 101.5% and 131.6% in 2021 to 116.3% and 158.8% in February this year. The Bank of Korea estimated that as of February this year, financial debt of high-risk households accounted for 9.0% of total household financial debt.
The Bank of Korea analyzed that there is a possibility that the delinquency rate will increase rapidly in the future as the delinquency rate of household loans is already higher in credit finance companies (female warriors), such as savings banks and credit card companies, than in other industries. As of the end of last year, the household loan delinquency rate was 0.2% for banks, 4.7% for savings banks, and 2.4% for female warriors.
During the same period, the proportion of high-risk household loans among savings banks and female warriors’ household loans was 26.6% and 16.6%, respectively, higher than banks’ 7.2% and insurance companies’ 12.4%.
However, the Bank of Korea predicted that savings banks and female warriors are currently good at absorbing losses, so concerns regarding institutional insolvency due to increased delinquencies in household loans are not great. At the end of last year, the capital adequacy ratio of savings banks was 13.3% and that of female warriors was 17.8%, higher than the regulatory ratio of 7-8%.
The Bank of Korea said, “Although the risk of insolvency across households is limited, there is a concern that the delinquency rate of household loans will rise in the future, centered on some non-bank financial institutions, due to the insolvency of high-risk households.” We will promote a soft landing of the household debt problem,” he explained.
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