[Household Debt Time Bomb Multiple Debtors] Card Loan Balance 32 Trillion Won, Record High

Card Loans Reached 32 Trillion Last Year, Up 3 Trillion from Previous Year
Average 14% High-Interest Loan Products
Recovery Rate in First Half of Last Year 11%... Less Than Half of Financial Crisis
Concerns Over Delinquency Rise Amid Prolonged Recession

[Asia Economy Reporter Ki Ha-young] Kim Ji-sun (55, pseudonym), who runs a small restaurant in Bundang, Gyeonggi Province, started turning to card loans to cover living expenses as business became difficult due to COVID-19. It became harder to borrow money from the bank where she had previously taken out loans as her store's sales declined. Despite having a bank loan of 30 million won and three cash advances, she ended up borrowing more to cover rent and restaurant maintenance costs, resulting in a situation where she was using loans to pay off other loans. Kim said, "Many people in the business around me are juggling two or three card loans," adding, "I'm afraid I might have to borrow from private lenders eventually, but since business is bad, I have no choice."

Last year, the balance of card loans (long-term loans) exceeded 32 trillion won, marking an all-time high. As the economy stagnated due to COVID-19, self-employed individuals who needed quick cash or those unable to borrow from banks due to stricter lending criteria turned to card loans. Given that card loans often involve low-credit or multiple debtors, there are concerns that economic downturns and rising interest rates could accelerate loan defaults.

According to the financial industry on the 18th, the card loan balance of seven specialized credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, and Hana Card) stood at 32.046 trillion won at the end of last year, the highest ever. This is about 3 trillion won (10.1%) more than the 29.107 trillion won recorded a year earlier.

Although the card loan balance increased, delinquency rates have decreased. As of the end of last year, Hana Card's delinquency rate was 1.02%, improving by 0.44 percentage points compared to the previous year. Woori Card and Shinhan Card also saw declines of 0.3 and 0.22 percentage points, respectively. KB Kookmin Card and Samsung Card improved by 0.17 and 0.16 percentage points, respectively.

The industry attributes this to a COVID-19-related illusion effect. The postponement of principal repayments and interest payment deferrals due to financial support measures delayed defaults. Additionally, due to credit loan restrictions in the primary financial sector, high-credit borrowers who previously showed little interest in card loans have moved to the secondary financial sector, creating a paradoxical situation where loan balances increase while delinquency rates improve.

Recovery Rate Less Than Half of That During Financial Crisis... Defaults Could Erupt All at Once When COVID-19 Financial Support Ends

However, card loans are high-interest loans averaging 14%, and since more than half of users are multiple debtors, the potential risk of default is greater compared to other loan products. According to the Korea Federation of Credit Finance, as of the end of January, 24.67% of Samsung Card's card loan customers were subject to high interest rates between 20% and 24%. Hyundai Card also recorded a high rate of 9.79%, close to 10%.

The proportion of multiple debtors is also high. According to data on card loan balances and delinquency status received by Rep. Jeon Jae-soo of the Democratic Party from the Financial Supervisory Service, as of the first half of last year, out of 2,603,541 total card loan users, 1,460,027 (56.1%) were multiple debtors who had loans from three or more financial institutions, including the one providing the card loan. The card loan recovery rate in the first half of last year was 11.8%, lower than the 26.6% recorded at the end of the 2008 global financial crisis.

Therefore, there are concerns that if the economic downturn continues, high-interest card loan users will be the first to experience loan defaults. This could trigger a chain reaction of household loan defaults starting with card loan users.

An industry official said, "Among card loan customers, there are many low-credit borrowers who find it difficult to borrow from banks and multiple debtors who urgently need living expenses," adding, "We are closely monitoring delinquency rates and other indicators because suppressed defaults could erupt all at once when the financial support measures extended until September end."

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