"No Money to Repay"... Credit Loan Delinquency Rate Hits Highest in 8 Years

Credit Loan Delinquency Rate Highest Since May 2015

Financial Services Commission Proposed 'Debtor Protection Act'
Debt Adjustment Rights and Delinquency Interest Reduction
National Assembly Shows Little Interest... Bill Passage Delayed

Vulnerable Groups May Miss Golden Opportunity for Recovery

The delinquency rate for personal credit loans has risen to its highest level in 8 years. The delinquency rate for loans to individual business owners also reached its highest point in 6 years and 9 months. In particular, the delinquency rate for personal credit loans was the highest among all loan sectors for both corporate and household loans.

High Delinquency in Credit Loans and Individual Business Owner Loans

According to the "Status of KRW Loan Delinquency Rates at Domestic Banks as of the End of May" released by the Financial Supervisory Service on the 27th, the delinquency rate for credit loans in May was recorded at 0.75%. This is the highest level since May 2015, when it was 0.85%. This means that the number of people at risk of becoming credit delinquents due to inability to repay bank debts has increased accordingly.

Loans to individual business owners were the second most risky after credit loans. In May, the delinquency rate for individual business owner loans was 0.45%, the highest since November 2016 (0.46%). The delinquency rate increased by 0.25 percentage points in just one year, indicating a rapid rise. It appears that the financial situation of self-employed individuals has worsened further after COVID-19 support ended.

An official from the financial authorities explained, "Self-employed individuals tend to take out both credit loans and individual business owner loans, so if their business becomes difficult, delinquency rates in both sectors rise. The delinquency situation is much worse than that of secured personal loans such as corporate loans or mortgage loans."

Debtor Protection Law Needed to Prevent Serial Bankruptcies

The Financial Services Commission emphasizes that the "Personal Financial Debtor Protection Act" (hereinafter referred to as the Debtor Protection Act) must be implemented to prevent serial bankruptcies among individual debtors. The Debtor Protection Act was created by the Financial Services Commission in the second half of last year as a measure to prepare for rising delinquency rates among individual debtors when bank loan interest rates surge.

The financial authorities proposed this bill in December last year, but it has never been properly discussed in the National Assembly. Although it was listed as a major task in the economic policy direction for the second half of this year announced by the Ministry of Economy and Finance in July, the National Assembly has shelved it, leaving it unable to move forward.

The core content of this bill is to provide vulnerable groups with debts of 30 million KRW or less the opportunity to request debt adjustment and to ease the burden of delinquency interest. The right to request debt adjustment allows delinquent borrowers who cannot repay their debts on time to first request banks for debt adjustments such as extension of repayment period, installment repayment, repayment deferral, or debt reduction. Banks receiving such requests must stop collection efforts and notify the debtor of the decision on debt adjustment within 10 business days.

The easing of delinquency interest means that delinquency interest is charged only on the amount overdue. A Financial Services Commission official explained, "For example, if a debtor borrowed 1 million KRW with principal and interest installment repayment and fails to repay 100,000 KRW due this month, delinquency interest is charged only on that 100,000 KRW, reducing the debtor's interest burden." Currently, even a single delinquency results in delinquency interest being charged on the entire principal and interest due.

Excessive collection efforts are also prevented for all debtors. Under the collection volume control system, collection contacts cannot exceed 7 times in 7 days. Debtors can also request debt collectors not to contact them during specific times or by certain methods or means.

A financial industry official said, "This bill must pass to help individual debtors recover, especially when delinquency rates are rising sharply like now. Protecting vulnerable debtors is something that should have no disagreement between ruling and opposition parties. If the National Assembly does not expedite discussions, the golden time to protect individual debtors will be lost."

Meanwhile, the Financial Supervisory Service stated, "The delinquency rate of domestic banks has been on an upward trend since the second half of last year, but the rate of increase is gradually narrowing." It added, "Typically, delinquency rates tend to decrease at the end of a quarter compared to during the quarter, and as banks have recently expanded the cleanup of delinquent loans to manage soundness, the delinquency rate at the end of the second quarter (end of June) is expected to decline more sharply compared to the end of the first quarter (end of March)."

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