Seoul, South Korea – South Korea's large loan shark industry is facing a crisis as delinquency rates have surged to unprecedented levels, according to the Financial Supervisory Service (FSS). The FSS's latest report on the first half of 2024 revealed that the delinquency rate for large loan shark companies, those with assets exceeding 100 billion won, climbed to 13.1% by the end of June, marking a 0.5 percentage point increase from the end of last year.
This marks a significant escalation from 6.1% in late 2021 and continues an upward trend that saw rates hit 7.3% and 12.6% in late 2022 and 2023, respectively. Since the FSS began tracking delinquency rates in 2010, the current figure represents an all-time high.
Delinquency rates for secured loans particularly contributed to this trend, rising 0.3 percentage points to 17.3%. Unsecured loans also saw a notable increase, climbing 0.9 percentage points to 8.8%.
Despite the rising delinquency rates, the average interest rate on loans decreased by 0.3 percentage points to 13.7%. The FSS attributed this decline to the 2021 reduction in the maximum legal interest rate from 24% to 20%. Since then, the average interest rate for personal unsecured loans provided by large loan shark companies has steadily decreased.
The total outstanding loan balance also contracted by 2.4% to 12.2 trillion won, primarily due to increased borrowing costs and rising delinquency rates. Unsecured loans accounted for 39.4% of the total, while secured loans made up the remaining 60.6%.
The number of borrowers decreased by 2% to 714,000, but the average loan amount per borrower remained relatively stable at 17.11 million won.
In response to these developments, the financial authorities plan to strengthen support for small and medium-sized loan shark companies with sound financial practices to ensure continued credit supply to low-income borrowers. Additionally, they will closely monitor the credit supply situation for low-income borrowers and the trend of delinquency rates.
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