Non-banking sector at greater risk due to fast increases in multiple loan borrowers

The number of individuals with three or more tranches of debt is sharply increasing in the non-banking sector, raising concerns over the financial soundness of savings banks, credit card firms and other secondary financial institutions in South Korea.

According to NICE credit agency data submitted to Rep. Kim Young-joo of the country’s ruling Democratic Party on Thursday, multiple borrowing grew 16.2 percent to 229.5 trillion won ($200.5 billion) in 2016 from 197.6 trillion won in 2015 in the non-banking sector, whereas the corresponding figure in the banking sector grew 9.6 percent to 202.4 trillion won from 184.7 trillion won.

The pace of such borrowing in the non-banking sector is even faster than the growth of entire household debt tallied at 11 percent in the same period.

The number of individuals indebted to more than three non-banking financial firms totaled 3,855,572 persons as of end-March, and their combined debt amounted to 439.83 trillion won. In particular, the number of such borrowers increased about 180,000 in 2016, the highest annual growth rate in the last five years.

Multiple loan borrowing could trigger a domino effect in repayment delinquencies from one financial institution to another when interest rates go higher.

According to an estimate from the Bank of Korea, an increase of half a percentage point on borrowing could contribute to a rise of nearly 20 trillion won to 206.6 trillion won from 186.7 trillion won at the end of March in at-risk households.

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