[Financial Stability Status] Non-bank Loans Attracting Yeongkkeul and Debt Investment Groups (Comprehensive)

As of the end of last year, 502 trillion won
4.9% increase compared to the previous year
Loans available for low-credit borrowers
Regulations are also weak, requiring government oversight

[Image source=Yonhap News]

[Asia Economy Reporters Eunbyeol Kim, Sehee Jang] Non-bank household loans, which had decreased, have significantly increased to the 500 trillion won level, marking a shift to growth. This is due to people seeking loans for real estate and stock investments turning to savings banks and mutual finance institutions, where loans are easier to obtain than at banks. Concerns are rising that the risk of non-bank household loans will further increase.

According to the 'Financial Stability Report (March 2021)' released by the Bank of Korea on the 25th, non-bank household loans at the end of last year stood at 502 trillion won, up 4.9% from the end of the previous year. Margin loans and unsecured loans accounted for 82.7% of the loan increase (23.7 trillion won) last year. Margin loans surged 108.7% last year as the stock market performed well, attracting investors leveraging to invest.

There were also many cases of loans taken from savings banks and mutual finance institutions to invest in commercial real estate such as shopping centers. Last year, non-bank non-housing collateral loans increased by 1.1 trillion won, turning to a 0.4% increase.

Unsecured loans increased mainly at savings banks and credit-specialized financial companies such as card and capital companies. The growth rate of unsecured loans accelerated from 8.8% in 2019 to 9.8% last year. Particularly, the groups applying for loans included those aged 60 and over (21.7%) and self-employed individuals facing difficulties due to the COVID-19 crisis (15.9%), whose incomes are relatively low, raising greater concerns about loan defaults.

The COVID-19 crisis has accelerated the money move phenomenon, where funds are borrowed to invest in stocks or real estate as asset markets surged. The proportion of financial asset investments increased significantly from 9.8% to 38.2% last year, while the shares of deposits, funds, insurance, and pensions fell by more than 10 percentage points. Time deposits declined further to -5.6% in December last year from -0.6% in June, while individuals' net purchases of domestic stocks reached 57.1 trillion won at the end of last year, surpassing 50 trillion won.

Real estate financial exposure last year was 2,279.3 trillion won, up 10.3% from 2,067 trillion won at the end of 2019. The ratio of real estate financial exposure to nominal GDP rose to 118.4%. The Bank of Korea emphasized, "Attention should be paid to the expansion of the increase and changes in risk composition."

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