Cash services and revolving credit balances, essential for many households, continue to rise. As banks and credit card companies tighten household loan management, demand for short-term, high-interest products is increasing. Concerns are growing that the quality of household debt, which has reached 2,000 trillion won, may deteriorate as funding conditions worsen for low- and middle-income borrowers.
According to the Korea Credit Finance Association on September 13, the combined card loan balance of nine major credit card companies, including Samsung, Shinhan, KB Kookmin, Hyundai, Lotte, Hana, Woori, BC, and NH Nonghyup, was 42.7957 trillion won at the end of July. This marks a decrease of 1.136 billion won from the end of June, when the balance was 42.9093 trillion won.
Although card loan balances surged to an all-time high in May, they have decreased for two consecutive months in June and July. This decline is attributed to credit card companies reducing card loan marketing and adjusting limits, along with the effects of bad debt write-offs and sales at the end of the quarter.
In contrast, cash service balances have increased significantly. The cash service balance for the nine card companies at the end of July was 7.0251 trillion won, up 240.9 billion won from the previous month’s 6.7842 trillion won. The revolving credit balance, which allows some card payments to be carried over to the next month, also rose by 43.9 billion won to 6.8759 trillion won.
Personal credit loan balances in online peer-to-peer (P2P) lending are also growing rapidly. Middle- and low-credit borrowers, pushed out of bank loan channels, are seeking alternative funding sources. By the end of August, the P2P personal credit loan balance reached approximately 610 billion won, a 3.5-fold increase from 174 billion won in January. The total loan balance of 46 domestic P2P companies also rose by 41.1%, from 1.6072 trillion won at the end of last year to 2.2671 trillion won by the end of August.
This trend is driven by stringent household loan management by financial authorities. With the loan growth target significantly lowered compared to last year, credit card companies have had to reduce card loan supply. As lending regulations tighten in the banking sector and card loan thresholds rise, some short-term funding demand is shifting to cash services and revolving credit.
The concern is that as funding demand shifts to higher-cost short-term card financing, the quality of debt may worsen. Low- and middle-credit borrowers who repeatedly use high-interest short-term products may accumulate interest burdens, increasing the risk of delinquency.
As of the end of July, the average interest rate for card loans among eight major credit card companies was 14.15% per year. The interest rates for revolving credit and cash services were higher, at 17.38% and 18.16%, respectively.
With the Bank of Korea returning to a tightening stance, rising interest rates could further increase the burden on vulnerable borrowers.
According to the Bank of Korea's 'Financial Stability Report for the First Half of the Year,' vulnerable borrowers, defined as those with multiple debts and low income or credit, accounted for 6.7% of all household borrowers at the end of the first quarter of this year, up from 6.4% in the third quarter of last year. The proportion of loans held by vulnerable borrowers also increased from 4.9% to 5.2% during the same period. The share of 'potentially vulnerable borrowers' reached 18.0% at the end of the first quarter.
A financial industry official stated, 'As authorities include card loans in household loan management, some low- and middle-credit borrowers are shifting to cash services or revolving credit, which have higher interest rates than card loans. This increases the risk of loan defaults and the number of high-risk borrowers, highlighting the need for supplementary measures targeting vulnerable groups.'
* This article has been translated by AI.
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