Personal Loans Reach Dangerous Levels

On September 17, our reporting team together with the National Information and Credit Evaluation Co. analyzed the loan records of the 16.43 million people nationwide who have received general loans, including mortgage loans.

The results of this analysis showed that as of late June, the total amount of loans taken out by the 221,516 people whose address information could be verified among the 4,776,535 who received mortgage loans was 17 trillion 99 billion won.

The average mortgage amount per person was 77.19 million won, 2.2 times this year’s national average household income (35.87 million won) estimated by the National Statistics Office.

This is much higher than the optimum income/loan ratio stated by the Financial Supervisory authorities (40 percent), and implies that there will be a high probability of a “household credit crisis” happening in the case of events such as a sudden drop in the prices of residences (houses, apartments, etc.).

The loan amount by city/province was the largest for Seoul (110 million won per person). This is 2.7 times this year’s projected annual household income of the residents of Seoul.

Other high rankers were: Gyeonggi 91.44 million won (2.4 times the annual income), Gyeongnam 64.79 million won (1.9 times the annual income), Chungnam 63.93 million won (2.1 times the annual income), and Busan 62.65 million won (1.9 times the annual income). The lowest ranking region was Ulsan, where the loan amount (42.61 million won) was close to the annual income.

Also, it turned out that self-employed businessmen, who are experiencing a severe crisis these days, were heavily burdened by loan repayments.

The total general loan amount, including mortgage loans and credit card loans, of the approximately 1.7 million independent businessmen included in this research was 76.48 million won per person.

This is the first time the status of the average mortgage loan amount per person and by region was released in detail. Currently, the financial authorities, such as the Bank of Korea and the Financial Supervisory Service, keep records only of the total mortgage loan amount.

Financial experts warn that if the economy gets worse to the degree that banks no longer extend expiring loans, there is a high possibility of chain bankruptcies of households and independent businesses.

Research Chief Kim Woo-jin of the Korea Institute of Finance said, “The current loan system of getting short-term loans that expire in three years or so and narrowly getting out of repaying the loan by extending it just before the expiration date is very similar to passing around a bomb. Banks and government authorities need to induce consumers to start paying back the principal early on in small payments.”