"‘Hard to Borrow Even 3 Million Won’ Large Savings Banks Reduce Small Loan Services"

Five of the Top 7 Savings Banks See Decrease in Handling Amounts
Managing Delinquency Rates and Strengthening Loan Screening

Most large savings banks reduced small credit loans under 3 million won in the first half of this year. Although this is part of soundness management, concerns are rising that the emergency funding channels for low-credit borrowers are narrowing.

According to an analysis of management disclosures from various savings banks on the 10th, five out of the top seven savings banks by asset size (SBI, OK, Korea Investment, Welcome, Pepper, Accuon, Daol) reduced their small credit loan amounts in the first half of this year. Welcome Savings Bank saw the largest decrease, dropping from 80.8 billion won at the end of last year to 66.0 billion won in the second quarter of this year, a reduction of 14.8 billion won. SBI Savings Bank followed, reducing by 9.3 billion won (203.7 billion won → 194.4 billion won) during the same period. Next were Pepper with 2.1 billion won (30.1 billion won → 28.0 billion won), Korea Investment with 1.3 billion won (36.9 billion won → 35.6 billion won), and Accuon with 0.3 billion won (12.5 billion won → 12.2 billion won).

Small credit loans refer to loans under 3 million won, primarily handled by large savings banks. In the second quarter of this year, the top seven savings banks’ small credit loan amounts totaled 694 billion won, accounting for 66% of the combined 1.0452 trillion won handled by 37 savings banks that issued more than 1 billion won in small credit loans.

Small credit loans have relatively small amounts per loan and are often used by low-credit and low-income borrowers for emergency funds, so their interest rates are higher than those of general credit loans. According to the Bank of Korea, as of July, the interest rate on small credit loans from savings banks was 17.68% per annum, 1.3 percentage points higher than the general credit loan rate of 16.38% per annum.

These savings banks are reducing small credit loans as part of soundness management. Facing worsening delinquency rates, they have started tightening loans to low-credit borrowers who pose relatively higher risks. A representative from a large savings bank explained, “As we strengthen loan screening for risk management, the number of rejections in small credit loans used by low-credit borrowers has increased.”

The delinquency rate for small credit loans is higher than the overall loan delinquency rate. For Korea Investment Savings Bank, the small credit loan delinquency rate in the second quarter was 13.58%, 9.45 percentage points higher than the overall delinquency rate of 4.13%. Accuon Savings Bank’s small credit loan delinquency rate was 12.44%, 8.06 percentage points higher than its overall delinquency rate of 4.38%. Welcome Savings Bank also had a small credit loan delinquency rate 2.72 percentage points higher than its overall delinquency rate. The deterioration speed was also rapid, with these banks’ small credit loan delinquency rates rising by 0.07 to 5.26 percentage points compared to a year ago.

Meanwhile, OK Savings Bank, which has the largest small credit loan portfolio in the industry, increased its small credit loan amount by 73.5 billion won in just six months. The bank’s small credit loan amount was 214.5 billion won at the end of last year and rose to 288.0 billion won in the second quarter of this year. Through expanded sales of small credit loan receivables and risk management, the delinquency rate decreased by 3.41 percentage points during the same period, from 7.08% to 3.67%.

[Image source=Yonhap News]

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