Drying Up as the Common People's 'Quick Cash Window'... Savings Banks Reduced Small Loans While Increasing Credit (Comprehensive)

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
Household Loan Caps Reduce High-Risk Small Loans Proportion
Number of Firms Not Handling Small Credit Loans Rose from 5 to 15
Delinquency Amounts Have Been Increasing 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. With the loan channels drying up and delinquency amounts increasing, concerns are rising that low-income and low-credit borrowers 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 significantly decreased by 201 billion won (18.2%).

On the other hand, total loans have been rapidly increasing every year. In the second quarter, the savings bank sector's loans recorded 88.097 trillion won, growing by 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 has also been decreasing every year. In 2016, 2.7% of total loans were small credit loans. After that, it dropped to 2.0% in 2017, 1.4% in 2018, 1.2% in 2019, and 1.3% in 2020. In the first half of this year, it recorded 1.0%, the lowest ever. This is the result of the small credit loan sector stagnating despite the industry's pie growing through active loan marketing.

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

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

The number of institutions that practically do not handle small credit loans is also increasing. In 2016, only five savings banks did not execute small credit loans. However, in the first half of this year, 15 institutions recorded zero in small credit loan transactions. This is why concerns are raised that households in difficult economic situations find it even harder to borrow money.

This trend is expected to continue for the time being. It is difficult to increase small credit loans while continuously receiving orders from financial authorities to manage the total volume of household loans. The savings bank industry must manage the total household loans this year so that they do not exceed 21.1% compared to the previous year. Among these, the growth rate of household loans excluding mid-interest loans and policy financial products must be capped at 5.4%. For individual institutions, it is inevitable to reduce small credit loans, which are mostly high-interest products.

A savings bank official explained, "Currently, small credit loans are also included in the total volume regulation and are being monitored," adding, "If one of the various household loans must be reduced, it is rational for institutions to reduce risky small credit loans." Another industry official lamented, "Most users of small credit loans are not in a normal financial state," and added, "There is a high possibility of moral hazard, so it is difficult to increase loans at a time when risk management is important."

It is also concerning that delinquency amounts have been increasing since the outbreak of COVID-19, despite the small loan amounts. The delinquency amount for small credit loans, which had been gradually decreasing, has increased 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.