Low-income households have higher default risks: report

The ratio of “debt-risk” households among low-income brackets are significantly higher than the national average, a report showed Sunday, confirming that poor families are more vulnerable to worsening economic and financial conditions.

According to the report by the state-run Korea Development Institute, the ratio of households deemed to have insufficient ability to pay back their debt among the nation’s poorest 20 percent is about four times higher than the average.

The amount of the poor households’ debts which are feared to go sour is also three times larger than the national average, the report showed.

Meanwhile, the richest 40 percent of households hold 73 percent of the total debts but their income and net wealth ratio are 76 percent and 75 percent, meaning that they are at less risk of defaulting on debts.

The report is based on a survey of income levels, expenditures, wealth, the amount of debt and the overall cash flow conditions for about 10,000 households, the think tank said.

“These findings demonstrate that low-income households here are relatively more vulnerable to shocks from income reduction or falling asset value,” the report said.

“It is necessary to craft appropriate polices to prevent default in the household sector from expanding in the face of growing downside macroeconomic risks,” it added.

South Korea’s household debts have been a major drag on the economy as it can result in less consumption and undercut the overall growth. The country’s household debt stood at 911.4 trillion won ($793.2 billion) as of the end of March.

The recent rise in household debts is driven mostly by non-banking agencies’ lending, the report said, calling for efforts to monitor debt-repayment capacity of borrowers falling into the category. (Yonhap News)