COVID-19 Shock... Surge in Living Expense Credit Loans and Overdrafts 'Living on Debt'

Bank Personal Credit Loans
Unusually Surge Since February
Balance of 5 Major Banks Reaches 113 Trillion Won This Month
Increases by 2.1341 Trillion Won in Less Than a Month

[Asia Economy Reporter Kim Min-young] An abnormal signal has been detected in personal credit loans in the banking sector. Typically, credit loans with a one-year maturity decrease in the first quarter and then increase from April due to seasonal factors such as outings and vacations. However, this year, the number of loan applicants has surged since February. This is interpreted as individuals whose livelihoods have become desperate due to the spread of the novel coronavirus infection (COVID-19) are taking out credit loans to supplement living expenses and other costs.

According to Shinhan, KB Kookmin, Hana, Woori, and Nonghyup Banks on the 27th, as of the 23rd, the outstanding balance of credit loans was recorded at 113.1271 trillion won. This is an increase of 2.1341 trillion won compared to last month (110.8786 trillion won). This contrasts sharply with March of last year, when the outstanding balance of credit loans decreased by 501.3 billion won compared to the previous month.

Before March even ended, the level has already surpassed that of August (1.6479 trillion won) and October (1.6894 trillion won) last year, which showed the largest increases.

The outstanding balance of credit loans includes general credit loans and overdraft accounts (minus loans). It is known that overdraft accounts constitute a significant portion.

The abnormal signs appeared from January this year. The outstanding balance of credit loans in January was 109.6861 trillion won, a decrease of 224.7 billion won compared to the previous month. In January last year, it decreased by 769.8 billion won compared to the previous month, so the decrease was only about 30%. Last month, the outstanding balance of credit loans increased by 1.1925 trillion won. In the same month last year, it increased by only 7.8 billion won.

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The banking sector estimates that self-employed individuals and office workers are surviving by using overdraft accounts due to the impact of COVID-19.

An official from a commercial bank said, “In winter, there are hardly any events that require large expenses, and consumption generally decreases, so the outstanding balances of credit loans and overdraft accounts usually decrease, but the increase in credit loan balances in the first quarter this year is unusual,” adding, “It seems to be due to the decrease in income caused by COVID-19.”

Another bank official analyzed, “It appears that self-employed people, small business owners whose livelihoods have become desperate due to COVID-19, and office workers who find it difficult to live on their salaries alone have been tapping into overdraft accounts since the beginning of the year.”

There is also an analysis that individuals withdrawing money from overdraft accounts to invest in stocks is a factor. A bank official said, “There may also be an effect of individual investors using low-interest credit loans to invest in stocks.” According to the Bankers Association, the interest rates for newly issued credit loans and overdraft accounts at the five major banks last month were 2.94% and 3.3% per annum, respectively.

The upward trend in credit loans is expected to continue for the time being. Typically, credit loans increase from the second quarter due to seasonal factors such as graduations, school admissions, outings, and vacation seasons, but this year, consumption demand is expected to surge all at once from April. The increase in credit loans in April last year was 424.8 billion won.

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