Outstanding Bank Overdraft Loans Near 70 Trillion Won... Over 14 Million Won per Account

Biggest Surge Since "Donghak Ants" Boom in Late 2021
Overdraft Loan Balance Growth Concentrated Between April and July
Rising Interest Rates Increase Repayment Burden for Overdraft Borrowers

The outstanding balance of overdraft loans at banks increased by more than 6 trillion won from January to July this year, approaching 70 trillion won. This is the highest level since the end of 2021, when a stock market frenzy followed the COVID-19 outbreak, and is likely related to the demand for "debt-funded investments" (investing with borrowed money).

According to "Overdraft Loan Balances by Bank" obtained by Representative Park Sunghoon of the People Power Party, a member of the National Assembly’s Political Affairs Committee, from the Financial Supervisory Service, the outstanding balance of overdraft loans at domestic banks as of the end of July was 69.7283 trillion won, a 9.6% (6.0874 trillion won) increase from the end of last year (63.6409 trillion won). This amount represents the actual money borrowed and used by borrowers, not just the approved loan limits.

During the same period, the number of overdraft accounts increased by 24,317 (0.5%), from 4,869,319 to 4,893,636. While the number of accounts rose by only 0.5%, the outstanding balance surged by 9.6%, indicating that overdraft users withdrew more money within their existing credit limits.

The average loan balance per account, calculated by dividing the outstanding overdraft loan amount by the number of valid (not closed) accounts, increased by 9% (1.18 million won), from about 13.07 million won at the end of last year to about 14.25 million won at the end of July this year.

This year’s increase in overdraft loan balances was heavily concentrated between April and July, during which the outstanding balance jumped by 5.7827 trillion won (95% of the annual increase).

As of the end of July, the outstanding balance reached its largest scale since the end of 2021 (70.1814 trillion won), when, in the wake of the COVID-19 shock, a low interest rate environment and ample liquidity pushed the KOSPI index past 3,000 for the first time, drawing attention to so-called "Donghak Ants" (individual Korean investors).

This increase in overdraft balances also appears to be linked to stock market investment. The KOSPI index plunged to the low 5,000s in March due to the outbreak of the Middle East war between the United States and Iran, began to recover in April, and saw leveraged and inverse products for single stocks like Samsung Electronics and SK hynix launched in May. Subsequently, the KOSPI index passed the 9,000 mark in June but underwent a sharp correction in July.

The Bank of Korea also estimated in its Monetary and Credit Policy Report released on the 10th that leverage investments using financial sector "other loans," such as credit loans and insurance policy loans, expanded significantly in the second quarter of this year.

With the overdraft loan balance heading back toward its late-2021 peak, the principal and interest repayment burden for borrowers appears to have increased even more than at that time.

This is because, based on bank-weighted loan balances, the average overdraft loan interest rate climbed from 3.94% per annum at the end of 2021 to 5.64% at the end of July this year, up by about 1.70 percentage points. Moreover, as leveraged investment positions were rapidly liquidated during the stock market correction, the debt repayment capacity of "debt-funded investors" may have weakened further.

Representative Park pointed out that the government should closely monitor not just the total amount of outstanding loans, but also the overall household financial situation and dependence on loans from multiple angles. Representative Park said, "While the number of accounts remained the same, the surge in funds withdrawn from overdraft accounts indicates a growing dependence of households on immediate cash advances," adding, "The problem of household debt cannot be resolved by policies that merely manage the number of loans, especially as the cash flow of everyday people is worsening."

This content was produced with the assistance of AI translation services.