Low-Income Borrowers' 'Quick Loans' Also Blocked... Unable to Repay Even 1 Million Won, Defaults Increase [Concerns Over Low-Income Finance Instability]

Small Credit Loans of 900.4 Billion KRW in H1... Down 7.5 Billion KRW YoY
Total Loans Increased 27.1% in One Year... Surpassing 88 Trillion KRW
Reducing High-Risk Small Loans Amid Household Loan Volume Regulations
Delinquency Amounts Increasing Gradually Since COVID-19

[Asia Economy Reporter Song Seung-seop] It has been identified that the savings bank industry has been reducing small credit loans, which are mainly borrowed by low-income groups for livelihood purposes. Small loans handled with a limit of 3 million won or less are typically used as emergency funds for living expenses or to prevent delinquencies. Concerns are rising that as loan channels for low-income and low-credit borrowers dry up, they may be pushed outside the formal financial system.

According to the Financial Statistics Information System on the 6th, the scale of small credit loans by 79 savings banks recorded 900.4 billion won in the first half of this year. This is a decrease of 7.5 billion won (0.83%) compared to 907.9 billion won last year. Compared to 1.1014 trillion won in 2016, it has decreased by 201 billion won (18.2%).

On the other hand, total loans have been rapidly increasing every year. In the second quarter, loans in the savings bank sector recorded 88.097 trillion won, rising 27.1% (18.787 trillion won) in one year. Considering that the loan scale of savings banks was only 39.4653 trillion won five years ago, it has increased by 123.2%.

The proportion of small credit loans in total loans fell from 2.7% in 2016 to a record low of 1.0% in the first half of this year. This is the result of the small loan sector stagnating even as the industry’s pie grows through active loan marketing.

Some Savings Banks Stop Handling Small Credit Loans... Industry Cites "Total Volume Regulation"

Small loans do not generate significant profits for banks but are generally considered emergency fund channels for financially vulnerable groups. Most cases involve those who urgently need funds or want to repay existing loan interest quickly to avoid leaving a delinquency record. The main users are small business owners, low-income groups, and low-credit borrowers with insufficient financial transaction history.

The number of companies that practically do not handle small loans is also increasing. In 2016, only five savings banks did not execute small loans. However, in the first half of this year, 15 companies had no small loan transactions at all. This is why there are criticisms that households in difficult economic situations find it even harder to borrow money.

This trend is expected to continue for the time being. Since the financial authorities have been consistently ordering total household loan volume management, there is no room to increase small credit loans. The savings bank industry must manage total household loans this year so that they do not exceed 21.1% compared to the previous year. A savings bank official explained, "Currently, small credit loans are also included in the total volume regulation and are being monitored. If one of the various household loans must be reduced, it is reasonable for companies to reduce risky small credit loans."

Although the amounts are small, the increase in delinquent amounts since the outbreak of COVID-19 is also a concern. The delinquent amount of small loans, which had been gradually decreasing, has been increasing every quarter since June last year. At that time, the delinquency scale was 50.1 billion won, but it increased by 26.3% to 63.3 billion won in the first half of this year. Since long-term loan maturity extensions and interest repayment deferral measures are being implemented, the actual delinquency amount is likely to increase further.

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