Focus on 'Credit Loans' with Rising Delinquency Rates and Reluctant Interest Rate Cuts

Financial Supervisory Service 'Status of KRW Loan Delinquency Rates at Domestic Banks as of End-February'
Delinquency Rates Rise Mainly in Personal Loans and Small-Medium Corporations

Authorities Focus Rate Cut Pressure on Mortgage and Jeonse Loans
Personal Loans Are an Exception... Delinquency Rates Also Rising
Refinancing Loans Is the Most Certain Way to Lower Interest Rates

The delinquency rate is rising mainly in credit loans and small and medium-sized corporate loans. According to the Financial Supervisory Service's 'Status of Domestic Banks' Won-denominated Loan Delinquency Rates as of the End of February' released on the 30th, the delinquency rate for won-denominated loans at domestic banks (based on principal and interest overdue for more than one month) was recorded at 0.36% as of the end of February. The delinquency rate at the end of February (0.36%) increased by 0.05 percentage points compared to the end of the previous month (0.31%) and rose by 0.11 percentage points compared to the same period last year (0.25%).

The amount of new delinquencies in February was 1.9 trillion KRW, similar to the previous month. The amount of delinquent loan settlements was 800 billion KRW, an increase of 200 billion KRW compared to the previous month. By segment, as of the end of February, the delinquency rate for corporate loans (0.39%) rose by 0.05 percentage points compared to the end of the previous month (0.34%). In particular, the delinquency rate for small and medium-sized enterprise loans (0.47%) increased by 0.08 percentage points compared to the end of the previous month (0.39%). The delinquency rate for individual business owner loans (0.39%) also rose by 0.06 percentage points compared to the end of the previous month (0.33%).

The delinquency rate for household loans (0.32%) increased by 0.04 percentage points compared to the end of the previous month (0.28%). Especially, the delinquency rate for household loans excluding mortgage loans (such as credit loans) (0.64%) rose by 0.09 percentage points compared to the end of the previous month (0.55%).

The main reason for the rising delinquency rate in credit loans is the continued upward trend in credit loan interest rates. While mortgage loan interest rates among household loans have dropped to the 3% range, becoming the norm, credit loan interest rates have decreased at a slower pace in comparison. According to the Consumer Portal of the Korea Federation of Banks, the average interest rate for new credit loans (excluding low-income financial products) at eight banks (the five major banks and three internet banks) actually increased from 6.06% in February to 6.16% in March.

[Image source=Yonhap News]

During the same period, some banks saw a decrease in the proportion of credit loans in the lowest interest rate bracket of '4% to less than 5%'. For example, Shinhan Bank's share dropped by 6.1 percentage points (from 26.5% to 20.4%), and NH Nonghyup Bank's share decreased by 4.6 percentage points (from 11.6% to 7%). Hana Bank (from 5.3% to 4%) and K Bank (from 25.2% to 24%) also saw declines.

The average mortgage loan interest rate at the eight banks fell from 4.68% in February to 4.56% in March, and a large number of mortgage loans with interest rates in the 3% range appeared mainly at internet banks, showing a stark contrast. A representative from a commercial bank said, "Financial authorities pressured banks to lower interest rates, so banks mainly reduced interest on mortgage loans and jeonse deposit loans," adding, "This policy effect was excluded from credit loans."

This is also why the delinquency rate for credit loans is much higher than that for mortgage loans. According to the Financial Supervisory Service's 'Status of Domestic Banks' Won-denominated Loan Delinquency Rates as of the End of February,' the delinquency rate for credit loans was 0.64%, higher than that for mortgage loans (0.2%) and small and medium-sized corporations (0.52%). The increase from the previous month was also 0.09 percentage points, the highest among all corporate and household loans.

Refinancing loans are considered the top method to reduce credit loan interest rates. The Financial Services Commission is preparing to launch a credit loan refinancing platform service by the end of next month. This service will allow users to compare credit loan interest rates from first-tier and second-tier financial institutions at a glance through an app and immediately switch to the cheaper option on the spot.

A financial industry official said, "Consumers sensitive to interest rate changes sometimes apply for the right to request a rate reduction, but the most effective way to reduce interest costs is to refinance the loan," adding, "Even a negative balance overdraft account can be refinanced anytime after just one month of creation."

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