This photo shows a notice regarding personal loans from a savings bank in Seoul, Nov. 10. Yonhap

The subrogation rate on loans held by low-income individuals with low credit ratings in Korea has nearly doubled in 2024 from a year earlier, a state-run financial agency said Sunday.

State-funded loan products recorded a subrogation rate of 16.2 percent as of end-November, a sharp increase from 8.4 percent tallied at the end of last year, according to the Korea Inclusive Finance Agency. The loan program is specifically designed to assist borrowers in a category with relatively stable repayment capabilities, helping them transition to first-tier financial institutions.

The subrogation rate refers to the proportion of loans for which financial institutions, such as the Korea Inclusive Finance Agency, repay principal amounts on behalf of borrowers who fail to meet their repayment obligations.

The surge was partly attributed to rapid deterioration in financial conditions stemming from a prolonged economic downturn, leaving low-income borrowers who were previously able to manage their repayments unable to fulfill their obligations.

Financial authorities are preparing to restructure the program, as the delinquency rate has been rising too quickly and requires better management. It is also reported that the authorities are considering adjusting the criteria for recipients of such loan products. (Yonhap)