South Korean personal loans surge to 5-year high amid 'debt-to-invest' trend

South Korean banks experienced the most significant rise in personal credit loans in over five years during June, signaling a potential increase in household debt. Across all financial institutions, the amount borrowed through credit loans and card loans surged by 23.3 trillion won this year.

The trend, colloquially known as "bitu" or "borrowing to invest," is largely driven by individuals leveraging personal overdraft accounts, which reached their highest balance in three years and eight months. Many are reportedly using these funds for stock market investments, fueled by the recent rally in semiconductor stocks and a broader enthusiasm for equities.

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Young people are increasingly taking out overdraft loans, expecting stock prices to rise.

This aggressive borrowing comes as household debt regulations have made it harder for some to secure loans against their homes for living expenses. The Financial Supervisory Service is reportedly set to convene with credit card companies that have missed their household debt management targets, potentially leading to a reduction in credit card loan limits.

Experts warn that if benchmark interest rates rise, the risk of loan defaults could increase, posing a threat to financial stability. The surge in borrowing among younger individuals, who anticipate further stock market gains, is a particular point of concern for regulators.

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If the base interest rate rises, the possibility of loan defaults increases, which will harm financial stability.