It is estimated that if the basic interest rate is raised by 1 percentage point, the delinquency rate of over-borrowers among young people will rise by 1.4 percentage points. This is four times higher than the general average.
At the Monetary Policy Committee held on the 22nd, the Bank of Korea approved the ‘September 2022 Financial Stability Report’ with such content.
The Bank of Korea evaluated that the financial imbalance, a factor of medium to long-term financial weakness, is reduced as the risk appetite of economic agents weakens and asset prices and private credit growth have slowed due to the increase in the base rate.
On the other hand, as the soundness of housing-related loans declined and debt repayment burdens increased when house prices adjusted due to rising interest rates, the risk of insolvency focused on vulnerable sectors such as vulnerable households and over- lenders, low-income and small-scale self-employed people, and marginal companies.
As a result of the BOK estimating the effect of an increase in the interest rate on the home loan delinquency rate per borrower, it was analyzed that the delinquency rate of vulnerable borrowers and young over-borrowers increased significantly when the base rate was raised compared to other borrowers . .
According to this, it was estimated that the delinquency rate of all households would rise by 0.352% when the basic interest rate rises by 1 percentage point. Among them, vulnerable borrowers rose by 0.966%. This is 4.8 times higher than non-vulnerable borrowers (0.199%). In the case of young people, it was 0.278%, while over-borrowing by young people was 1.423%, which is more than four times the total household delinquency rate. Over-borrowers among young people refer to borrowers with loans of 500 million or more won.
The BOK said, “In a situation where debt focused on floating rate loans has increased significantly, an increase in the interest rate can directly lead to an increased burden of interest repayment. The ratio (DSR) is also has risen quickly,” he said.
In addition, it was found that the risk of insolvency is very likely to increase, especially for low-income self-employed people who are expected to have a relatively large increase in their debt burden when interest rates rise.
It has also been estimated that the possibility of delinquency due to the increase in the basic rate is higher for the vulnerable self-employed than the self-employed who are not vulnerable. As a result of the BOK’s estimate, it was estimated that if the base interest rate were to be raised by 1 percentage point, the delinquency rate of vulnerable self-employed borrowers would rise by 1.808 percentage points. This is more than 10 times higher than non-vulnerable self-employed borrowers (0.162 percentage points), and almost twice as much as low-income self-employed people (0.762 percentage points). Vulnerable self-employed borrowers are multi-borrower borrowers with low income or poor credit.
Even if the financial support measures are reduced or terminated at the end of this month, it is expected to have a greater impact on low-income self-employed people. When the financial support measures are complete, the debt-to-income ratio (DSR) that the self-employed must repay from their total income will rise by 0.4 percentage points, and it is estimated that the low income self employed is increasing. rising 1.1 percentage points, which is three times higher.
The BOK said, “There is a possibility that the risk of insolvency will increase, especially for low-income self-employed people who are expected to have relatively large debt repayment burdens when interest rates rise.”
* This article is an article from Newsys, an affiliated news agency, and may differ from the direction of coverage/editing of this paper.
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Editorial team reporter reporter@topstarnews.co.kr
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