[신용카드] Credit Card Delinquency Rates Surge to 3.4%, Reaching a Ten-Year High

 

Credit Card Loan Delinquency Rates Hit 3.4%, Highest in a Decade

In Seoul, Kim, a 33-year-old cafe owner, recently received a text message from a credit card company notifying him of a loan delinquency. Last year, he borrowed 10 million won at an interest rate of 15%, but has been unable to make timely payments due to a decrease in cafe sales. Several large offices near the cafe relocated or closed, significantly reducing customer traffic. Kim mentioned, "I'm considering shutting down the business."

As high interest rates and inflation persist, the financial strain on ordinary households is intensifying. Credit card loans and emergency loans from internet banks, often sought by those in urgent need of money or those with medium to low credit ratings, are seeing a rapid increase in delinquencies.

Credit Card Loan Delinquency at Banks Hits Decade High

According to the Bank of Korea, as of the end of February, the delinquency rate for credit card loans (excluding banks with separate credit card operations) stood at 3.4%. This rate, the highest in over ten years since November 2014, includes cases where the principal payment has been overdue for at least one day. The general bank card delinquency rate had risen nearly 1 percentage point from 2.5% at the end of February last year. Although there was a slight decrease to 3.1% in March as banks cleared some of the non-performing loans, concerns remain high due to the continued elevated rates. A commercial bank official expressed concerns, "We are worried the delinquency rate might surge to the high 3% range, similar to the card crisis of 2003-2004."

Internet banks that often provide small credit loans to individuals with lower credit scores are also troubled by the increasing number of customers unable to repay their debts on time. According to data obtained from the Financial Supervisory Service by Democratic Party member Oh Gi-yung, the total delinquency of 'emergency loans' at internet banks such as Kakao Bank, K Bank, and Toss Bank reached 27.6 billion won at the end of March, an increase of 94% (13.4 billion won) from last year. These emergency loans, which can be issued up to 3 million won through a simple application process on smartphones, come with high-interest rates of up to 15% annually.

The Plight of Low-Income and Low-Credit Households

The recent significant increase in credit card and internet bank emergency loan delinquencies is attributed to the worsening financial conditions of low-income and low-credit households. Prolonged high prices and interest rates intended to control inflation have been persisting for over two years, exacerbating the financial struggles of these households.

An analysis of the household trends survey for the first quarter of this year, released by the Statistics Office, showed that essential living expenses now account for 38% of household income, the highest proportion on record. Essential living expenses include food, rent, utilities, and transportation costs, which are critical for maintaining a household. With little money left after covering these costs, the balance of card loans has been snowballing. According to the Credit Finance Association, the balance of card loans at nine domestic credit card companies reached 39.9644 trillion won at the end of last month, continuing to break records for four consecutive months.

Despite a slightly better situation in commercial banks than in secondary financial institutions, the problem of non-performing loans remains significant. As of the 29th, major banks like KB, Shinhan, Hana, and Woori wrote off or sold off 1.2111 trillion won in bad loans in the first quarter, a 68% increase from the previous year. An official from a major bank noted, "The consecutive clearance of over 1 trillion won in bad loans in the last two quarters is unprecedented, indicating a crisis in delinquency rate management."

Experts suggest that measures to revitalize the economy are more urgent than short-term financial support. Professor Lee Min-hwan from Inha University said, "Merely asking financial companies for billions of won in support for low-income finances does not solve the root problem. The government needs to wage an all-out war to revive domestic demand."

Keywords and Definitions:

• Delinquency Rate: The percentage of loans on which borrowers have failed to make payments for a minimum set period, indicating financial instability or hardship.
• Non-Performing Loans: Debts for which the borrower has not made the scheduled payments for a specified period. Typically, this indicates a loan in which interest payments or repayment of the principal are overdue by 90 days or more.
• Credit Card Loan: A loan granted through a credit card account that allows borrowers to borrow funds up to a specific credit limit at a pre-agreed interest rate.
• Emergency Loan: A type of short-term borrowing where individuals can access funds quickly during financial emergencies, often characterized by higher interest rates and simplified application processes.