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Debt burden rises for self-employed youths, seniors: report
By 임정요Published : Oct. 24, 2016 - 11:01
South Korea's self-employed people in their 20s and 60s run a higher risk of defaulting on loans from financial institutions due to their increased debt burden amid a protracted business slump, a report said Monday.
The country's financial authorities thus need to keep a close watch on the potential risk, which could come as a drag on the local financial sector, the Korea Institute of Finance said in the report on household debt.
According to the report, the debt-to-income ratio for 20-somethings jumped to 174 percent as of end-May 2016 from 112 percent seven years earlier. The comparable figure for sexagenarians spiked to 287 percent from 208 percent. Their increase rates were much higher than the overall 53.5 percentage-point gain for self-employed borrowers.
A gauge of consumers' ability to repay debts, DTI refers to the percentage of their monthly gross income that goes toward paying debts.
The institute attributed the higher DTIs to the country's high youth unemployment and an increase in the number of people in their 60s among baby boomers.
The unemployment rate for people aged between 15 and 29 reached 9.4 percent in September, far higher than the headline jobless rate of 3.6 percent. South Korean baby boomers born in the 1950s and 1960s have been rushing to start one-man operations to finance their post-retirement lives.
Making matters worse, the report also said young and senior self-employed business owners resort more to nonbank financial institutions that charge higher interest than banks, with the ratio reaching 60 percent for 20-somethings and 66 percent for sexagenarians.
"Given the high DTI figures and their excessive dependence on nonbank lenders, there is a high risk of loans to self-employed people in their 20s and 60s turning sour should income shocks arise," the think tank said.
South Korea remains gripped by snowballing household debt.
According to a government tally, South Korean households' overall debt came to a record high of 1,257 trillion won ($1,110 billion) as of end-June. (Yonhap)
The country's financial authorities thus need to keep a close watch on the potential risk, which could come as a drag on the local financial sector, the Korea Institute of Finance said in the report on household debt.
According to the report, the debt-to-income ratio for 20-somethings jumped to 174 percent as of end-May 2016 from 112 percent seven years earlier. The comparable figure for sexagenarians spiked to 287 percent from 208 percent. Their increase rates were much higher than the overall 53.5 percentage-point gain for self-employed borrowers.
A gauge of consumers' ability to repay debts, DTI refers to the percentage of their monthly gross income that goes toward paying debts.
The institute attributed the higher DTIs to the country's high youth unemployment and an increase in the number of people in their 60s among baby boomers.
The unemployment rate for people aged between 15 and 29 reached 9.4 percent in September, far higher than the headline jobless rate of 3.6 percent. South Korean baby boomers born in the 1950s and 1960s have been rushing to start one-man operations to finance their post-retirement lives.
Making matters worse, the report also said young and senior self-employed business owners resort more to nonbank financial institutions that charge higher interest than banks, with the ratio reaching 60 percent for 20-somethings and 66 percent for sexagenarians.
"Given the high DTI figures and their excessive dependence on nonbank lenders, there is a high risk of loans to self-employed people in their 20s and 60s turning sour should income shocks arise," the think tank said.
South Korea remains gripped by snowballing household debt.
According to a government tally, South Korean households' overall debt came to a record high of 1,257 trillion won ($1,110 billion) as of end-June. (Yonhap)
