Delinquency rates on credit card loans, including cash advances and card loans, have remained high at the 3% range for nearly two years. The delinquency rate on household unsecured loans at commercial banks stands at around 0.4% to 0.5%. The industry assesses that low-income people who used credit card loans to borrow small amounts of quick cash are unable to repay their debts due to the economic downturn.
According to Bank of Korea statistics on the 10th, the delinquency rate (one day or more) on credit card loans at general banks was 3.3% in September, up 0.2 percentage points (P) from the same period a year earlier (3.1%). The delinquency rate on credit card loans at general banks has remained in the 3% range for 21 consecutive months from January last year through September this year.
General banks refer to banks excluding commercial banks that spun off their card businesses under financial holding companies and special banks such as Industrial Bank of Korea, with most being regional banks including Gwangju, Busan, Gyeongnam, and Jeonbuk Bank. Credit card loans are typically used by vulnerable borrowers pushed out of first-tier financial institutions, with interest rates approaching 20% per year.
The industry views a delinquency rate in the 3% range for credit card loans as high. Since 2006, when the Bank of Korea began compiling annual figures, the delinquency rate on credit card loans at general banks has mostly stayed in the 2% range. Except for the four consecutive months from August to November 2014 when the rate stayed in the 3% range, until last year there had been no instance where a 3% range delinquency rate persisted for more than two months.
The industry believes many self-employed people, whose business operations have become difficult, are taking out credit card loans for quick cash. According to Statistics Korea, the retail sales index in the second quarter of this year was 101.8, down 0.2% from the same period a year earlier. Retail sales have been declining for 13 consecutive quarters due to prolonged weak domestic demand.
The National Tax Service analyzed that 1,008,282 business owners, including individuals and corporations, filed closure reports last year. This figure is an increase of 21,795 from the previous year and, for the first time in 30 years since related statistics were compiled in 1995, surpassed 1 million.
The number of vulnerable self-employed borrowers is also increasing. Vulnerable self-employed borrowers are defined as low-income individuals in the bottom 30% of income or low-credit individuals with a credit score of 664 or below, among multiple borrowers with three or more household loans and personal business loans.
According to the Bank of Korea, as of the end of June this year, the number of vulnerable self-employed borrowers was 437,000, with the share of vulnerable borrowers among the self-employed tallied at 14.2%. This figure has been on the rise since the second quarter of 2022 (10.7%).
A credit card industry official said, "The number of borrowers unable to repay loans is increasing due to the worsening economy, and this trend appears likely to persist," adding, "Typically, card loans or cash advances are used by borrowers with low credit, so it is not easy to significantly reduce delinquency rates."