A 2 Trillion Won Surge in March Alone... Ordinary People Borrowing Amid the COVID Shock (Comprehensive)

Bank Personal Credit Loans
Unusually Surge from February
Balance of 5 Major Banks Reaches 113 Trillion This Month

[Asia Economy Reporter Kim Min-young] There are abnormal signals emerging in personal credit loans within the banking sector. Typically, credit loans with a one-year maturity decrease in the first quarter but increase from April due to seasonal factors such as outings and vacations. However, this year, loan demand has surged since February. This is interpreted as individuals facing financial difficulties due to the novel coronavirus infection (COVID-19) shock are taking out credit loans to supplement living expenses.

According to Shinhan, KB Kookmin, Hana, Woori, and NongHyup banks as of the 23rd, the outstanding balance of credit loans was 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 the largest increases seen last year in August (1.6479 trillion won) and October (1.6894 trillion won).

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.

Yonhap News

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, 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.

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 involving large expenses, and consumption generally decreases, so the outstanding balances of credit loans and overdraft accounts usually decline, but the increase in credit loan balances in the first quarter this year is unusual,” adding, “It seems to be due to the income reduction caused by COVID-19.”

Another bank official analyzed, “It appears that self-employed people, small business owners who are struggling to make a living due to COVID-19, and office workers who find it difficult to live on their salary 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 Korea Federation of Banks, 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.

This increasing trend in credit loans is expected to continue for the time being. Usually, 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.