[Concerns Over Poor Performance in Microfinance] Record High Usage Amount... Red Flag for 'Weak Link' Defaults

Photo by Yonhap News

[Asia Economy Reporter Kwangho Lee] Credit card debt, mainly used by low-credit and vulnerable groups who find it difficult to borrow money from banks, has reached an all-time high. This is due to an increase in livelihood loans amid the prolonged COVID-19 pandemic, the craze for debt-financed investment (debt investment) and borrowing to the limit (Yeongkkeul), and the soaring housing prices, which have blocked bank counters, leading people to turn to card loans. Experts warn that as the interest on already high-interest card loans continues to rise, if the groups known as the 'weak link' in household debt cannot roll over their debts, a domino effect of credit defaults could explode.

According to data submitted by the Financial Supervisory Service to the office of Yoon Chang-hyun, a member of the National Assembly's Political Affairs Committee from the People Power Party, the outstanding balance of card loans (long-term loans) from the top five credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte Card) reached 27.919 trillion won in the first half of this year.

This is an increase of 13.0% (3.647 trillion won) compared to 24.272 trillion won in the same period last year. Compared to the end of last year (26.367 trillion won), it increased by 5.5% (1.552 trillion won), marking the largest increase in the past three and a half years.

The balance of cash services (short-term loans) also surged. The cash service balance in the first half of this year was 5.111 trillion won, up 3.0% from 4.954 trillion won in the same period last year.

The revolving balance, which allows consumers to purchase goods with a credit card in a lump sum and pay part of the amount after the following month, also grew significantly. According to data received by Jeon Jae-su, a member of the Democratic Party, from the Financial Supervisory Service, the revolving balance carried over by eight full-service card companies (the five mentioned plus Woori, Hana, and BC Card) reached 5.8157 trillion won in the first half of this year, a 19.2% increase over three and a half years.

An industry insider explained, "This is due to the combined effect of strengthened bank loan regulations since the end of last year and the so-called 'debt investment' and 'Yeongkkeul' trends. Recently, to block the balloon effect, financial authorities have tightened card loans, causing loan demand to shift to cash services and revolving credit."

Experts point out that strong regulation alone is not the solution. Professor Ji-yong Seo of the Department of Business Administration at Sangmyung University warned, "Many users of card loans take them out for livelihood purposes rather than for home purchases or investment. If card loan regulations are strengthened, low-income self-employed people and other ordinary citizens will have nowhere to borrow money, which could negatively impact the market economy."

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