[2030 Debt Warning] Unable to Repay... Reckless 'Debt Investment & All-In' Risk Triggers

Serious Household Debt in 2030... Half of the Largest Household Debt Ever Recorded
Youth with Declining Repayment Ability Face Risks of Default Due to Interest Rate Hikes and Cryptocurrency Crash
Concerns Over Financial Market Risks in South Korea in the Second Half of the Year

As the Bank of Korea officially signals an interest rate hike within the year, warning lights have been lit regarding the management of household debt, which is among the worst globally. Last year, household debt approached 1,700 trillion won, surpassing nominal Gross Domestic Product (GDP) for the first time in history. Financial authorities, judging that household debt has reached a dangerous level, began tightening measures at the end of last year, but the debt hit a record high of 1,765 trillion won in the first quarter of this year. In particular, excessive borrowing by the 2030 generation has emerged as a financial time bomb in the Korean market, intertwined with interest rate hikes and the cryptocurrency crash. Experts warn that if the prices of homes, stocks, and cryptocurrencies?where MZ (Millennial + Generation Z) generations have gone all-in with Yeongkkeul (borrowing to the limit) and Bit-tu (debt-financed investment)?plummet, it could become a ticking time bomb for the Korean economy. Bank of Korea Governor Lee Ju-yeol also pointed out the risks of household debt, stating, "The market could be greatly shaken even by a small shock." Asia Economy presents the current status, problems, and alternatives regarding household debt among the 'weak links'?the 2030 generation and middle-to-low credit borrowers.

[Asia Economy Reporter Lee Kwang-ho] Warning lights have been lit for the 2030 generation, who have engaged in Bit-tu (debt-financed investment) in stocks and coins and jumped into Yeongkkeul (borrowing to the limit) to buy their own homes. The 2030 generation’s Dakchul (borrowing without hesitation) to avoid becoming 'lightning poor' is highly likely to become impaired due to inflation concerns leading to interest rate hikes and plummeting cryptocurrency prices.

There are concerns that Bit-tu, targeting the 2030 generation with weak repayment ability, will become a financial time bomb in the Korean market, especially as interest rates are expected to rise significantly in the second half of the year.

According to the Bank of Korea and financial authorities on the 12th, household debt reached 1,765 trillion won at the end of the first quarter this year, marking a 9.1% increase compared to the same period last year and setting a record high. The ratio of household debt to GDP exceeded 100%, and the growth rate was the highest among major countries.

In particular, the scale of household debt among the 2030 generation has increased exponentially. According to Hana Financial Management Research Institute, the loan-to-income ratio (LTI) for people in their 30s rose by 23.9 percentage points compared to the previous year, the largest increase among all age groups. The 20s followed with a 23.8 percentage point increase, then ▲40s with 13.3 percentage points ▲50s with 6.0 percentage points ▲60s and above with -3.2 percentage points.

Among new loan customers, the proportion of youth aged 30 and under exceeds half. According to the Korea Institute of Finance, the share of new loans to those aged 30 and under rose about 10 percentage points from 49.5% in 2017 to 58.4% in September last year. During this period, the youth share of new household loans also jumped from 42.4% to 55.3%.

The problem lies in the possibility that loans recklessly taken through Bit-tu and Yeongkkeul could become impaired due to various adverse factors in the second half of the year. With the Bank of Korea signaling an interest rate hike in the second half of this year, the interest burden on young people who have been rolling over debts among various financial institutions is expected to increase sharply. There are also concerns that cryptocurrencies, which many rushed into like moths to a flame, could lead to a surge in credit delinquencies if the implementation of the Act on Reporting and Using Specified Financial Transaction Information (Special Financial Transactions Act) in September forces many crypto businesses to shut down. Peer-to-peer (P2P) loans, where the 2030 generation holds an absolute majority, are also expected to face inevitable 'eat-and-run' damages once the Online Investment-Linked Finance Business Act (On-tu Act) is enforced at the end of August. For example, in the P2P industry, a major player like Lendit has a 78.2% loan share to the 2030 generation.

Experts express concern that the repayment burden risk for young people is rapidly worsening. Baek Jong-ho, a research fellow at Hana Financial Management Research Institute, pointed out, "If interest rates rise in earnest, defaults among young people with declining loan repayment ability could spread."

Meanwhile, the Bank of Korea’s Monetary Policy Committee will hold a regular meeting on the 15th to decide the base interest rate. With the fourth wave of COVID-19 leading to the highest level 4 social distancing in the Seoul metropolitan area, a rate freeze is considered likely. However, since Governor Lee Ju-yeol has officially signaled an interest rate hike within the year, there is also a possibility of dissenting opinions favoring a rate increase.