Korean savings banks shun household loans on delinquency rate management

[Photo by Yonhap]

Vulnerable borrowers in South Korea are struggling to receive loans from savings banks and private lenders as they are raising the bar for funds in an effort to manage delinquency rate and preserve profitability.

According to the Korea Federation of Savings Banks on Monday, only 28 out of 79 savings banks nationwide provided household credit loans last month, down from 34 in July last year.

When savings banks sharply reduced household loans in the first quarter of this year from a year ago, there were more than 30 lenders that supplied funds.

More are giving up on credit loans as rising financing costs and worsening delinquency rates have led to losses in the first quarter.

Low-credit borrowers are struggling to receive loans.

Only 16 savings banks granted household credit loans to low-credit borrowers with credit scores below 600 in July, down from 25 in the same month last year.

“We are still under pressure to resolve the cost of financing that has doubled in the past year and the delinquency rate continues to worsen, so we have reduced individual credit loans,” said a savings bank official.

Private lenders, which have the largest proportion of low-credit borrowers among financial companies, resumed new loan supply in the second quarter of this year but the volume is only 10~20 percent of that of the same period last year.

The decline in the volume comes as private lenders struggle in terms of financing.

Leading private lenders can borrow money from banks but at an annual average interest rate of 16.6 percent.

Low-credit borrowers, in the meantime, are turning to state loans for funds.

The supply of the workers’ sunshine loan, 90 percent of which are guaranteed by the Korea Inclusive Finance Agency (KINFA), reached about 2 trillion won ($1.5 billion) in the first half of this year, the largest ever on a half-yearly basis.

The supply of another loan guaranteed by Seoul Guarantee Insurance Co. was 492.7 billion won in the first half of this year, double the amount in the first half of last year.