Soaring House Prices, Surging Stock Market, Stalled Self-Employment... 'Yeongkkeul' Even with High-Interest Card Loans

Balloon Effect of Large-Scale Regulation
Concerns Over Subprime Bomb

[Asia Economy Reporter Ki Ha-young] "Card loans are typically sought by middle- to low-credit borrowers with ratings between 3 and 6, but usage among high-credit borrowers has significantly increased. This is likely due to the impact of the novel coronavirus disease (COVID-19) on living expenses and debt-financed investments. Recently, banks tightening their lending standards may have also contributed. Although delinquency rates remain low thanks to government financial support, there is a risk that delinquency rates could skyrocket in the first half of next year, potentially triggering a wave of non-performing loans." (A Card Company Official)

As banks uniformly tighten lending due to government regulations, a 'balloon effect' is materializing where borrowers are shifting to secondary financial institutions such as savings banks and card companies. Notably, high-credit borrowers are increasingly taking out loans from these higher-interest secondary financial institutions. Moving to high-interest loans increases the burden of principal and interest repayments, and concerns are rising that after government support ends in the first half of next year, the financial distress caused by the third wave of COVID-19 will surface as a non-performing loan crisis.

According to the financial sector on the 11th, a branch of C Savings Bank in the Euljiro area recently saw a significant increase in inquiries about high-interest overdraft accounts and other loans compared to previous years. A representative from this savings bank hinted, "We have recently received many calls asking whether it is possible to get the maximum limit on overdraft accounts and to increase the limit on existing unsecured loans." This is interpreted as demand from borrowers who lost eligibility for bank unsecured loans after regulations, turning to savings banks and others.

Loans from secondary financial institutions have surged this year. According to the Bank of Korea, as of the end of the third quarter, the household loan balance at savings banks was 29.5913 trillion KRW. This is an increase of 1.8267 trillion KRW in just three months compared to the previous quarter. This is the largest increase since the Bank of Korea began publishing related statistics in the first quarter of 2003.

Card loans have also increased significantly. According to NICE Credit Rating, the card loan balance of seven specialized card companies (Shinhan, Samsung, Kookmin, Hyundai, Lotte, Woori, Hana) reached 30.6913 trillion KRW in the third quarter of this year. This is a 7.1% increase compared to 28.6523 trillion KRW in the same period last year. In particular, demand for card loans among high-credit borrowers surged. Among Woori Card customers using card loans in October, 32.66% received interest rates below 10%, up nearly 10% from 20.62% the previous month. Hyundai Card also reported that 31% of all card loan customers during this period received interest rates below 10%. However, as of the third quarter, the one-month delinquency rate for card loans was 1.4%, down 0.2 percentage points from the previous year. The industry explains this as a visual illusion caused by COVID-19.

A financial sector official pointed out, "The balloon effect caused by bank loan regulations could ultimately worsen non-performing loans in the secondary financial sector," adding, "Once COVID-19-related financial support measures end, a non-performing loan bomb could explode all at once."

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