[P2P Selection] Industry Leader's Delinquency Rate Nears 20%... What Happens to Investments Amid Widespread Closures?

Average Delinquency Rate of 16.37% Among 138 Companies
8 Companies Reach 100%
Full-Scale Sorting After Law Enforcement

[Asia Economy Reporter Kim Min-young] The delinquency rate in the peer-to-peer (P2P) lending industry has exceeded 16%. Even the top companies are facing delinquency rates approaching 20%, raising alarms over delinquency management. If more companies go out of business due to inability to handle delinquencies and defaults, it could lead to losses for investors, putting the industry in a state of emergency.

According to P2P statistics site Midrate on the 27th, the average delinquency rate among 138 P2P companies was recorded at 16.37%.

Among them, 21 companies have delinquency rates exceeding 15%, with the industry leader Terra Funding having a delinquency rate of 19.62%.

Delinquency Rate at Risk Level

Eight companies, including Deo Joeun Fund and Loop Funding, have disclosed delinquency rates of 100%. This essentially means they have stopped operations such as loan receivables collection. The investment funds that these eight companies have failed to return to investors amount to 89 billion KRW.

The delinquency rate of Pop Funding, which was revealed to be a fraudulent company, also reached 97.28%. This company’s cumulative loan amount is 498.5 billion KRW, with an outstanding loan balance of 128.5 billion KRW.

Companies well-known since the early days of the business, such as Sun Funding (89.0%), Beyond Funding (85.3%), Sodit (77.79%), We Funding (58.86%), Fundid (55.2%), and Finstreet (55.18%), also have considerably high delinquency rates.

Authorities Instruct to Establish Delinquency Rate Management Measures

With the enforcement of the P2P Act, financial authorities have regarded delinquency rates above 15% as having a significant impact on business conditions and have strengthened disclosure obligations. They also announced that if the delinquency rate exceeds 20%, companies will be required to prepare and report delinquency management plans.

However, the delinquency rates of major companies recorded on the first day of the law’s enforcement are so high that there are gloomy prospects for the P2P industry, which has been institutionalized.

Nonetheless, the P2P industry argues that delinquency rates alone cannot explain a company’s insolvency. A P2P industry official said, “For companies that do not sell their receivables but conduct their own collections, the delinquency rate may appear higher because they hold onto the receivables instead of selling them. In P2P, if receivables are sold, the discounted portion directly becomes a loss for investors, but if self-collection is done, the fees taken by non-performing loan (NPL) companies can be returned to investors, reducing losses.”

Still, delinquency rates exceeding 50% and even reaching 100% indicate a lack of basic investor protection measures and borrower management systems that a financial company should have. It only means that funds were collected and lent to insolvent companies while there was a severe shortage of personnel for credit screening, debt collection, and compliance monitoring. In this process, there have been frequent cases of creating fake borrowers to commit fraud or using funds from later investors to pay principal and interest to earlier investors, a practice known as “Ponzi scheme.”

The industry expects that with the enforcement of the P2P Act, fraudsters and criminals will disappear from the market, but if insolvent companies go bankrupt in the process, it is expected to be difficult for investors to recover their investments.

The first checkpoint for exposing insolvent companies is expected to be the results of a full audit report survey by financial authorities. Until the day before, about 240 P2P companies were required to submit audit reports on loan receivables to financial authorities, but it is known that only about 20 companies, roughly 10%, have submitted them. An industry official said, “Financial authorities plan to refuse registration to companies that do not submit audit reports or fail to receive a qualified opinion, so it is expected that many companies will switch to loan business or close down,” adding, “The real ‘sorting out’ has begun.”

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