South Korea's Crypto Trading Boom Leads to Devastating Loan Defaults for Young Investors

Crypto Trading Frenzy among South Korean Youth Sparks Wave of Loan Defaults

South Korea's younger generation has become increasingly drawn to the world of cryptocurrency trading, but for many, the allure has come at a hefty cost.

A surge in loan defaults among individuals in their teens and twenties has been reported, particularly among customers of neobanks like K Bank, which has partnered with the popular crypto exchange, Upbit.

Recent data highlights that 4.05% of K Bank’s customers under the age of 30 have defaulted on their loans, a figure notably higher than its competitors.

Is the Ease of Neobank Loans Fueling Risky Investments?

K Bank, which has seen a sharp rise in younger customers opening accounts linked to Upbit for crypto trading, has been hit hard by this trend.

As the bank faces uncertainties that have led to the withdrawal of its IPO plans for this year, concerns over the rising defaults loom large.

Translated image (Source: X @skfwkRnsk)

Media reports suggest that the surge in defaults is not limited to K Bank alone.

Kakao Bank, which teamed up with crypto exchange Coinone in August 2022, and other neobanks like Toss Bank have also seen increases in defaults among younger borrowers.

In Kakao Bank’s case, 2.1% of customers aged 29 and below have failed to repay their loans, while at Toss Bank, the rate is somewhat lower at 1.75%.

Toss Bank, notably, has not partnered with any domestic cryptocurrency exchanges, leading experts to speculate that the defaults at banks partnered with exchanges may be linked to failed crypto investments.

Are Cryptocurrency Investments Behind the Default Spike?

Experts believe that the sharp rise in loan defaults is tied directly to crypto trading.

According to financial analysts, many in their twenties with accounts linked to Upbit have likely borrowed money to invest in cryptocurrencies, only to find themselves unable to repay these loans after suffering losses in the volatile market.

“Twentysomethings with Upbit-linked accounts at K-Bank may have borrowed money for cryptocurrency investment and then lost the ability to repay their loans,” a financial expert explained.

The total losses banks have incurred from these defaulting borrowers are staggering—around $288 million—representing a 484% increase from data recorded in December 2021.

The data, released by the Financial Supervisory Service after a freedom of information request by lawmaker Kim Hyun-jung, shows the seriousness of the issue, especially given the high default rates among younger customers.

Should Loan Screening Be Stricter to Protect Young Borrowers?

Lawmaker Kim Hyun-jung, a member of the National Assembly’s Political Affairs Committee, has called for stricter loan screening processes at neobanks.

Kim emphasised that while neobanks’ accessibility to loans has its advantages, it also makes it easier for young people to take out loans they may struggle to repay.

“Neobanks’ loan accessibility offers some positive aspects. But this can also make it easier for young people to take out loans beyond their means. This can expose them to serious financial risks. We need measures that stop young people from taking out loans they can’t pay back.”

The figures show that K Bank’s default rate of 4.05% for borrowers under 30 is nearly twice as high as its competitors, suggesting a particularly acute problem at the bank.

With K Bank’s IPO on the horizon, the issue of rising defaults among young crypto traders could have significant implications for the neobank’s future.

As South Korean youths continue to engage in the high-stakes world of crypto trading, it remains to be seen whether tighter lending regulations or other safeguards will be introduced to prevent further financial distress among this vulnerable demographic.