Youth loan defaults surge in South Korea amid crypto trading

A recent spike in loan defaults among South Korean youths, particularly those linked to cryptocurrency trading, has raised concerns among lawmakers.

According to reports, neobanks like K Bank and Kakao Bank have seen a significant rise in defaults from customers in their teens and twenties.

Data released by the Financial Supervisory Service, following a freedom of information request from lawmaker Kim Hyun-jung, showed that 4.05% of K Bank’s customers under 30 have defaulted on their loans.

K Bank, which is partnered with the crypto exchange Upbit, has experienced a surge in young customers, many of whom are active in crypto trading.

The increased number of defaults is attributed to these younger borrowers taking out loans for cryptocurrency investments, only to find themselves unable to repay the debt.

The bank’s default rate among customers under 30 is nearly double that of its competitors, with Kakao Bank showing a 2.1% default rate and Toss Bank, which has no crypto exchange partnership, reporting a 1.75% rate.

Kim Hyun-jung highlighted the need for stricter loan screening, particularly at neobanks that offer easier access to credit.

"Neobanks' loan accessibility offers some positive aspects, but it can also make it easier for young people to take out loans beyond their means," Kim stated.

She emphasised the importance of implementing measures to prevent young borrowers from facing serious financial risks due to unmanageable debt.

Banks have reported significant losses, with around $288 million in defaults by young borrowers, marking a 484% increase since December 2021.

The issue has sparked calls for more cautious loan policies at neobanks, as South Korea's youth face rising financial challenges related to crypto investments.