Overdraft Delinquencies Rise Among Young and Elderly Investors
In the first half of this year, delinquent balances on overdraft accounts at major commercial banks in South Korea grew at a pace nearly four times faster than outstanding loan balances, data showed. The figures suggest that distress is surfacing among borrowers who used debt to invest in stocks, as
The delinquency rate for overdraft accounts at major South Korean banks surged in the first half of 2023, with younger and older investors bearing the brunt of the financial strain. In June, the delinquency rate stood at 0.22%, a 0.04 percentage point increase from the previous year. However, outstanding loan balances rose by 8.5% during the same period, while delinquent balances surged by 33.2%. The disparity was stark: delinquent balances grew far more rapidly than the amount borrowed.
Age groups experienced varying degrees of distress. Those aged 20 and younger witnessed the highest delinquency rate at 0.33%, while those 60 and older had the second-highest rate at 0.37%. Both figures exceeded the overall average of 0.22%. Notably, among the 20 and younger age group, delinquent balances surged 32% from 2.5 billion won to 3.3 billion won.
Unsecured credit loans followed a similar trend, with delinquency rates at 0.35% at the end of June, a 0.05 percentage point increase from the prior year. The 20 and younger group had the highest delinquency rate at 0.67%, while the 60 and older group had 0.59%. This contrasted with the 40s age group, which had the lowest delinquency rate at 0.29%.
Banks attribute the rise in delinquency rates to the stock market correction, which hit a peak in June before plummeting. Analysts explain that borrowers who leveraged their investments during the market's peak are now facing a double burden of investment losses and interest costs. Older investors, in particular, are vulnerable due to their reliance on stock-backed loans from securities firms.
Among the 2.9 trillion won in outstanding loans from 10 domestic comprehensive financial investment entities using top five stocks, 63% of the total was held by those aged 60 and above.
If the value of pledged shares falls below a certain threshold, securities firms are at risk of "forced liquidation," selling the shares compulsorily to recover their losses. Rep. Lee Jong-wook, highlighting the issue, stated that the debt accumulated through borrowing for stock investments, fueled by the overheated market, is now impacting young people and older adults. He emphasized that financial authorities must conduct immediate inspections to assess systemic risk and the soundness of vulnerable borrowers.
Written by urgent.news from BusinessKorea's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
