High Debt 'Dajung Chaemuja' Card Delinquency Rate Rises... "Limitations to Rolling Over Debt"

7 Card Companies, Multiple Debtors' Delinquency Rates Rise Simultaneously in First Half of Year
Delinquency Rates Higher Among Borrowers with Lower Credit Ratings
Concerns Over Household Debt Defaults as a Risk Factor

[Asia Economy Reporter Ki Ha-young] Concerns are growing that multiple borrowers who have taken out three or more loans from financial companies could become a ticking time bomb for household debt defaults. This is because the delinquency rates of multiple borrowers with low credit scores at credit card companies have all increased compared to the previous year in the first half of this year. Experts point out that as the proportion of multiple borrowers increases and the repayment ability of low-credit borrowers declines, the credit card companies' loan asset risk inevitably rises.

According to the report titled "Analysis of Potential Asset Quality Deterioration Factors Focusing on Credit Card Multiple Borrower Asset Exposure" released by NICE Credit Rating on the 24th, as of the first half of this year, when the total card assets of seven specialized credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana) are classified by the number of loans per borrower, 38.6% were assets of multiple borrowers holding three or more loans in total. In particular, for loan-type card assets such as cash services (short-term loans) and card loans (long-term loans), the proportion of multiple borrower assets accounted for as much as 62.6% of total card assets during the same period.

Delinquency Rates Higher Among Multiple Borrowers with Low Credit Ratings

The problem is that multiple borrowers also have very low credit ratings. The more loans they have, the more their credit rating is downgraded, and the lower the credit rating, the higher the delinquency rate. Based on the combined data of the seven specialized credit card companies, the average delinquency rate of multiple borrower assets fell slightly from 2.6% last year to 2.5% in the first half of this year. On the other hand, the delinquency rates of low-credit multiple borrowers (grades 7 to 10) all increased from 0.1 percentage points to as much as 5.5 percentage points compared to the end of the previous year. The delinquency rate for grade 9 in the first half of this year was 37.3%, up 5.5 percentage points from the end of last year, and grade 10 also recorded 65.1%, up 1.8 percentage points from the end of last year.

Furthermore, it is pointed out that the recovery rate, which has declined due to the expansion of multiple borrowings (cash recovery amount compared to the principal of delinquent loans subject to recovery), is likely to become a burden during future periods of rising delinquency rates. Since the 2008 financial crisis, the proportion of loans moving from normal to delinquent has decreased due to improved risk management capabilities of credit card companies or improved repayment abilities of borrowers, but loans classified as delinquent are more likely to remain long-term delinquent loans. In fact, when comparing recovery rates in the first half of this year with those during the financial crisis, the total card asset recovery rate dropped by about 50%, from 40.6% at the end of 2008 to 21.4% at the end of June 2020. For loan-type card assets, cash services dropped from 35.4% at the end of 2008 to 17.8% at the end of June 2020, and card loans fell from 26.6% to 11.8% during the same period, both decreasing by more than 50%.

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