Japanese oufits dominate small-loan finance business

By Choi Sung-jin

Japanese finance companies have unduly eroded Korea’s non-banking money-lending businesses, such as small-loan financing and savings banks, financial authorities said Wednesday.

But domestic financial service firms are less than willing to jump into this business for fear of giving a negative image to the public as usurers or loan sharks, they said. “If the current trend continues unabated, the domestic small-loan finance market will be swayed by Japanese lenders,” an official said.

According to the Financial Supervisory Service, outstanding loans extended by 29 Japanese lenders, including Rush & Cash and Sanwa Money, amounted to 6.5 trillion won ($5.4 billion) as of Sept. 30, accounting for 59 percent of the total. The two Japanese companies virtually share the domestic small-loan finance business, which mid to low-income people largely use for fast cash.

The savings bank sector is also giving away a considerable chunk of market share to the Japanese. Together, the assets of the three Japanese savings banks _ SBI, JT Chinae and OSB _ total 6.4 trillion won, more than 15 percent of the total 41.3 trillion won held by 79 institutions. If the assets of OK Savings Bank, which is regarded as quasi-Japanese capital, the comparable share approaches 20 percent of the total, the regulatory agency said.

Japan has drastically toughened regulatory controls on private money-lending businesses since the 2000s and lowered the interest ceiling to 20 percent, forcing its small-loan financiers to turn to the overseas market, especially Korea, where regulatory barriers are low and interest rates high. The prosperity of Japanese small-loan companies is due to the wide gap in interest rates of the two countries, allowing them to borrow money from Japanese banks at a low rate of 1-4 percent and lend it to low-income Koreans, demanding up to 34.9-percent interest.

Also contributing to their flourishing business is the reluctance of Korean financial companies to join in because of concerns about a bad corporate image, the officials said. The domestic lenders need drastically to increase unsecured lending based on online banking and enhance their credit-assessment and risk-management abilities, they said.

But an industry executive cited difficulties, saying: “We once attempted to take part in the credit loan business in a joint-venture with a Japanese partner but gave up faced with opposition from within fearing the fall of corporate reputation,” said an executive of a large commercial bank. “At a time when the profit-producing ability of the domestic financial sector has reached its limit, it needs to develop the unsecured loan market far more positively than now.”