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| Signboards of private money lenders hang on a building in southern Seoul in this photo taken in 2012. Korea Times file |
By Yi Whan-woo
The latest decision by the country's largest private lender to shut down business operations is prompting concerns that financially vulnerable people will have fewer places to a get a quick cash loan.
According to industry sources, Thursday, OK Savings Bank recently submitted a request to the financial authorities seeking to acquire Rush and Cash, the No. 1 private money lender, by the end of this year.
Both OK Saving Bank, a second-tier bank, and Rush and Cash operate under the wing of OK Financial Group which specializes in lending money to customers whose credit ratings are not high enough to get loans from first-tier banks.
Rush and Cash initially sought to close down its business by June next year and was scheduled to be acquired by OK Saving Bank under the OK Financial Group's plan to streamline its portfolios.
Market observers assessed that Rush and Cash decided to close down a year earlier than planned due to increasing difficulty raising money following steep rate hikes delivered by the Bank of Korea (BOK).
The BOK aggressively hiked its policy rate by a combined 3 percentage points for more than a year until January, in its bid to bring down high inflation. The rate currently stands at a 14-year high of 3.5 percent.
In turn, private money lenders need to borrow money from first-tier banks at a rate of up to 9 percent. In the past, the borrowing rate was as low as the upper 5 percent range.
While Rush and Cash had to pay a higher interest rate to run its business, it could not impose higher borrowing rates to its customers under a law that stipulates a legal lending cap of 20 percent.
The legal cap has come down from 24 percent in 2018. It has been implemented since July 2021, a month before the BOK began its credit tightening cycle.
"The fact that even the No. 1 private money lender struggled to maintain its business suggests smaller market players are in a similar situation and that they may also pull out of their businesses," a source said. "In turn, those who found private money lenders as a last resort to get loans may no longer have other places to borrow money."
Citing Financial Supervisory Service (FSS) data, the source pointed out the number of private money lenders' customers has been falling over the years ― from 1.38 million in December 2020 to 1.23 million in June 2021, 1.12 million in December 2021 and 1.06 million in June 2022.
The remaining balance of the loans taken out by the customers, however, has been on the rise. The amount stood at 14.54 trillion won in December 2020 and slightly fell to 14.51 trillion won in June 2021. It then ticked up to 14.64 trillion won in December 2021 and then to 15.88 trillion won in June 2022.
