By Kang Seung-woo
Korean savings banks, beleaguered by mounting debts from their ill-advised project financing (PF) endeavors, turned to household lending but now concerns are rising over those debts, the nation’s financial watchdog said Thursday.
Short-term household loans soared 43.8 percent in 2010 from the previous year.
According to the Financial Supervisory Service (FSS), the secondary banks’ unsecured household loans reached an outstanding 4.6 trillion won ($4.20 billion) as of the end of last year, compared with 3.2 trillion won at the end of 2009.
The amount loaned increased by 400 billion won in the first half of 2010, but 1 trillion won was added to the debt in the latter part of the year and the uptick has continued in 2011, with a 300 billion won increase in January from the month previous.
Unsecured household loans accounted for 7.6 percent of the savings banks’ total lending, amounting to 64.6 trillion won at the end of January, compared with 7.1 percent a month earlier and 5 percent at the end of 2009, the FSS noted.
“The FSS is worried about the fast-growing household lending by savings banks,” an official of the FSS said. “We are closely monitoring their risk management and recruiting process.”
Although the FSS believes that the current situation is not likely to produce a mass of defaulters like the credit card crisis in the early 2000s, it plans to launch spot inspections of savings banks if the loan growth further speeds up.
Savings banks excessively extended PF loans on the back of the housing market boom in 2005 and 2006.
But the global financial crisis hit the property market hard and it has yet to see a recovery, causing lenders and constructors to suffer from a mountain of debts and to eventually shift focus to household borrowers.
Observers say that the lucrative microcredit market has pitted savings banks against private moneylenders.
Last year, the nation’s top two loan companies, Rush and Cash and Sanwa Money, posted net profits of 145.1 billion won and 142.1 billion won respectively.
Some savings lenders have recruited officials from leading private moneylenders in order to expand their loan services.
Lowered interest rates are also giving secondary banks an edge over moneylenders.
According to the FSS the average interest rate at savings banks in the fourth quarter of 2010 stood at 32 percent, while that of loan funds was 42 percent.
“As savings banks became active in unsecured loans to households, the number of borrowers from private lenders have been diminishing,” said an official of the Consumer Loan Finance Association (CLFA).
The jump in household loans by savings banks is also raising concerns over the country’s rising household debt.
According to Statistics Korea, household debts came to nearly 800 trillion won as of the end of last year, nearly 80 percent of gross domestic product.