March P2P Loan Delinquency Rate at 15.8%... Consumer Alert Issued Over Default Concerns

Loan Balance ('17 End) 0.8 Trillion KRW → ('18 End) 1.6 Trillion KRW → ('19 End) 2.4 Trillion KRW → ('20.2 End) 2.4 Trillion KRW → (3.18) 2.3 Trillion KRW
Delinquency Rate ('17 End) 5.5% → ('18 End) 10.9% → ('19 End) 11.4% → ('20.2 End) 14.9% → (3.18) 15.8%

[Asia Economy Reporter Kangwook Cho] As P2P (peer-to-peer) finance is set to enter the regulatory framework this August, the loan delinquency rate has surged past 15%, raising concerns about potential defaults. Accordingly, financial authorities have issued a consumer alert (caution) and plan to actively conduct on-site inspections regarding any unsound business practices or incidents of fraud and embezzlement by P2P companies.

According to the Financial Services Commission and the Financial Supervisory Service on the 23rd, as of the 18th, the outstanding P2P loan balance was recorded at 2.3362 trillion KRW. The P2P loan balance has steadily increased from 753.2 billion KRW at the end of 2017, 1.6439 trillion KRW at the end of 2018, to 2.3825 trillion KRW at the end of last year. Although it slightly decreased to 2.3749 trillion KRW at the end of last month, the problem lies in the delinquency rate. The delinquency rate over 30 days nearly doubled from 5.5% at the end of 2017 to 10.9% at the end of 2018, and it recorded 11.4% at the end of last year, showing a slowdown in the increase. However, this year, it sharply rose by 4.4 percentage points from the end of last year, reaching 14.9% at the end of February and 15.8% on the 18th.

In particular, according to disclosure data from the Korea P2P Finance Association (44 companies), companies with a high proportion of real estate loan products (such as real estate project financing and real estate-secured loans) showed relatively higher delinquency rates. As of the end of February, the average delinquency rate of 16 companies exclusively handling real estate loan products (100%) was a staggering 20.9%, which is 2.9 times higher than the remaining 28 companies (average delinquency rate of 7.3%).

P2P finance is a fintech service that connects loans and investments online. It has rapidly grown by pioneering new loan and investment markets such as mid-interest loans. It emerged as an alternative to loan sharks by offering mid-interest (annual 8-16%) credit loans to low-credit borrowers who previously bore high interest rates (18-24%). According to financial authorities, the number of P2P companies increased sharply from 183 at the end of 2017 to 242 as of the 18th of this month, and the cumulative loan amount surged from 1.682 trillion KRW to 9.6032 trillion KRW during the same period.

With the rapid growth of P2P loans and the sharp rise in delinquency rates increasing concerns about principal losses, financial authorities have reissued a consumer alert. The authorities warned that P2P loans are high-risk products where losses due to borrower defaults are borne by investors, and that the return of invested funds within the initially agreed investment period is not guaranteed. When selecting P2P companies, it is necessary to check whether they are registered with the Financial Services Commission, review financial disclosure data from the P2P Association, and verify company reputation information on internet cafes. Special caution is required for companies conducting excessive investment events, and disclosure details should be carefully examined when investing in real estate loans. Furthermore, since P2P loan investments offering high returns are generally high-risk products, investors should diversify with small amounts to prepare for the risk of non-repayment at maturity.

A financial authority official stated, "We will continuously monitor whether P2P companies comply with the 'P2P Loan Guidelines' and actively conduct on-site inspections regarding unsound business practices or incidents of fraud and embezzlement by P2P companies, with plans to take strict measures including notifying investigative agencies."

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