By Kang Seung-woo
Financial companies saw their number of delinquent customers increase by nearly 200,000 this year as more people struggle to repay debt amid the alarming deterioration of family finances.
The default rates for households approved by commercial banks have surpassed the level shown during recent financial crises, and an increasing number of small- and medium-sized companies are sinking under a sea of red, industry figures show.
According to statistics by National Information and Credit Evaluation (NICE), a credit-rating agency, the number of individual credit defaulters reached 1.1 million at the end of June, up a staggering 19.5 percent from 919,570 in December last year.
The number represents a rebound in the number of delinquents, which had been declining as the country navigated its way out of the economic turmoil that erupted in 2008.
After reaching 1.21 million in 2008, the number of delinquent individuals declined by 170,000 to 1.03 million in 2009 and by another 130,000 in 2010.
The default rate of Woori Bank’s household loans was measured at 0.77 percent in July, representing a dramatic increase after the bank ended last year at 0.47 percent and its highest level since 0.6 percent at the end of March 2009.
Hana Bank’s default rate for loans reached 0.88 percent in July to approach its peak of 0.97 percent posted in June 2009. Kookmin Bank, which competes with Woori as the country’s biggest bank by assets, has never allowed its delinquency rate to pass 1 percent, but it reached precariously close at 0.96 percent at the end of June.
Companies are also struggling to repay debt. According to the Korea Credit Guarantee Fund, its subrogation payment for corporate loans accounted for 3.6 percent of total credit guarantees in August, compared to 3.2 percent at the end of last year. The rate soared to 4 percent in June.
The Bank of Korea (BOK) and the government made full-scale efforts to stimulate the economy for households and companies to sidestep a potential credit crisis after the economic downturn of 2008, but so far, the moves have not been working as prescribed.
The central bank lowered its key interest rate to a record low 2 percent that encouraged commercial lenders to extend their loans and eased interest burdens, while the government increased fiscal spending to improve companies’ financial health.
However, amid soaring consumer prices and the ballooning budget deficit, they do not have many options, translating into higher default rates for households and corporate borrowing.
According to the BOK, the country's household debt reached 876.3 trillion won ($825.1 billion) as of the end of June.
While there are few measures to put in place domestically, what is worse, the slowing global economy is also denting Korean policymakers.
As the U.S. and Chinese economies struggled in the second quarter of the year, Korea’s export-driven economy managed to grow 0.9 percent.
Banks’ current calls to control household debt growth can deteriorate delinquency rates in the future.
“Banks’ restrictions on lending can hurt those who depend on borrowing to pay interest and for living expenses. Considering this, the prospective default rate is likely to go up,” said an official from a local bank.