"Quick Cash Loans Getting Harder"... Savings Banks Shun Small Credit Loans

79 Savings Banks Total Loans
Increased by 8.4828 Trillion Won in 1 Year
Urgent Loans Slightly Up by 907.9 Billion Won
Large Firms Also Prefer Corporate Credit
Provision Regulation Tightening Plays a Role

[Asia Economy Reporter Kim Min-young] It has been revealed that savings banks, considered representative financial institutions for the common people, are actually neglecting loan products for the underprivileged. While the total loans of savings banks have surged significantly over the past year, they have raised the threshold for small credit loans, commonly called "urgent loans," which are frequently sought by the common people, and have been selling them passively. It is speculated that borrowers who could not obtain urgent loans from savings banks have been pushed en masse to high-interest loan companies and illegal private loans.

According to the Financial Supervisory Service's Financial Statistics Information System on the 15th, as of the end of June, the total loans of all 79 savings banks amounted to 69.31 trillion won. This is an increase of 8.4828 trillion won compared to 60.8272 trillion won in the same period last year. On the other hand, the balance of small credit loans during the same period was only 907.9 billion won, accounting for just 1.30% of total loans. The proportion of small loans, which was 1.53% in 2017, fell to 1.38% at the end of last year and shrank further in the first half of this year. Small loans refer to loan products under 3 million won offered by savings banks. They can be borrowed on the same day without collateral, serving as a means of urgent financing for the common people.

The balance of small loans increased to 1.1092 trillion won at the end of 2015. However, it gradually decreased to 1.0091 trillion won at the end of 2016, 910.8 billion won at the end of 2017, and 769.2 billion won at the end of 2018. Due to the COVID-19 pandemic, which shrank the common people's economy, the balance rose to 925.4 billion won in March but has since returned to a downward trend.

This is largely due to the worsening economic conditions for the common people caused by COVID-19. Savings banks reduced unprofitable personal loans and focused on corporate loans as not only their main customers?self-employed and small businesses?but also medium-sized companies, which usually avoided second-tier financial institutions, sought financial support.

Large savings banks also shifted their business direction by expanding corporate credit. For example, the corporate fund loan ratio of large A Savings Bank was only 34.95% at the end of 2017 but grew by more than 10 percentage points to 45.55% by the end of June.

A senior official at a savings bank said, "Corporate loan interest rates are only 5-6% per annum, but since the risk of default is low, the loan amounts per case are large, and collateral is solid, corporate loans have become a new source of revenue for savings banks."

Industry insiders explained that the financial authorities' regulation requiring an additional 50% provision for high-interest loans exceeding 20% per annum also influenced the reduction of small loans. The interest rate on small loans is at the legal maximum rate of 24% per annum.

It is expected that the handling of small credit loans will decrease further. A representative from B Savings Bank said, "There is a reluctance to handle small loans that do not help profitability and only attract criticism for charging high-interest loans to the common people," adding, "This loan trend is expected to continue across the industry." A financial sector official pointed out, "More than half of the users of loan companies cannot use existing financial institutions," and warned, "Low-credit borrowers who cannot pass the loan threshold of savings banks have no choice but to be pushed toward loan companies and illegal private loans."

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