Shrinking Loan Shark Industry... "Common People Will All Suffer Like This"

387 Stores Closed in a Year and a Half
Balance Down 8.81% Compared to 2019
Loan Barriers Rise, User Numbers Plummet

2021 First Half Survey on the Actual Conditions of the Loan Business

[Asia Economy Reporter Kwangho Lee] It has been revealed that nearly 400 loan businesses, the last bastion of financial institutions for ordinary people, have closed their doors in just a year and a half. This is due to a sharp deterioration in profitability following the reduction of the legal maximum interest rate. As loan businesses shut down and profitability worsens, the loan threshold has risen, leading to an increase in ordinary people being driven to illegal private loans.

According to the "2021 First Half Survey on the Actual Conditions of the Loan Business" announced by the Financial Supervisory Service on the 31st, the number of loan businesses registered with the Financial Services Commission stood at 968 as of the end of June, down by 387 (29.56%) from 1,355 at the end of 2019. Including loan businesses registered with local governments, the total number slightly increased to 8,678.

The outstanding loan balance was 14.5141 trillion KRW, down 8.81% (1.4029 trillion KRW) from 15.917 trillion KRW at the end of 2019. Compared to the end of last year (14.5363 trillion KRW), it also decreased by 0.15% (22.2 billion KRW).

The outstanding loan balance of small and medium-sized loan businesses (assets under 10 billion KRW and individuals) increased by 3.8% (88.5 billion KRW) to 2.4249 trillion KRW compared to the end of last year, whereas that of large loan businesses (assets over 10 billion KRW) decreased by 1.3% (147.3 billion KRW) to 11.269 trillion KRW during the same period, which had a significant impact.

Among the total outstanding loan balance of 14.5141 trillion KRW, unsecured loans amounted to 6.9781 trillion KRW, and secured loans were 7.539 trillion KRW.

The number of loan business users was 1.23 million, a decrease of 11.4% (159,000 people) from 1.389 million at the end of last year, due to the suspension of new loans by Japanese loan businesses such as Sanwa and Joy, and the conversion of P2P-linked loan businesses to online investment-linked financial businesses.

However, the outstanding loan balance per user has been steadily increasing, reaching 11.8 million KRW, up from 8.96 million KRW at the end of 2019 and 10.47 million KRW at the end of last year. The delinquency rate for large loan businesses was 7.3%, down 1 percentage point from 8.3% at the end of last year.

The financial sector expects that many loan businesses have closed in the second half of this year following the reduction of the legal maximum interest rate from 24% to 20% per annum in July. Previously, financial authorities also projected that about 39,000 people would turn to illegal private loans due to the reduction of the legal maximum interest rate. In fact, when the legal maximum interest rate was lowered to 24% per annum in 2018, about 50,000 people were unable to obtain loans from the formal financial sector and were pushed into private loans.

The problem is that the ruling party is accelerating legislative amendments to further reduce the legal maximum interest rate. Since November last year, 15 bills have been proposed to lower the legal maximum interest rate to between 10% and 15%.

Loan businesses are bewildered by the political attempts to further reduce the maximum interest rate just six months after it was lowered to 20%.

A loan business official pointed out, "With the reduction of the legal maximum interest rate, even large loan businesses have gone into temporary closure, and further reduction means shutting down the business. Financially vulnerable groups who cannot even borrow from loan businesses will have no choice but to turn to illegal private loans."

Professor Tae-yoon Sung of Yonsei University's Department of Economics advised, "If the interest rate reduction is too steep, financially vulnerable groups may move to illegal private loans, worsening the situation. To prevent such a balloon effect, financial authorities need to establish well-structured countermeasures."

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