A red flag was raised over the soundness of small and mid-sized savings banks, which have provided loans to small shipbuilding equipment and auto parts makers.
In addition, the delinquency rate of card loans (card loans plus cash services) of seven credit card companies grew 0.17 percentage point over the period of one year, raising concern over the delinquency of household loans by non-bank lenders.
These are some of the signs that a slump in the real economy stemming from sluggish domestic demand and worsening trading conditions due to global trade disputes are spreading to the financial sector.
A recent analysis of the management reports of seven major savings banks in Busan and South Gyeongsang Province showed that their delinquency ratios and NPL ratios were up to twice as high as the average of all savings banks in Korea.
This suggests that the slump of the shipbuilding and automobile industries in this region is has made their parts suppliers marginal firms.
A growing number of non-bank lenders, which have extended loans to low-income people with low credit ratings are on alert as a growing number of their customers are behind their debt payments.
According to the Financial Supervisory Service, the card loan default rate of seven credit card companies not affiliated with banks rose from 2.98 percent in September of last year to 3.5 percent in a year. The default rate is the percentage of loans whose principal and interest were not paid for one month or longer. These loans have high interest rates of around 20%.
It is highly likely that if personal credit loans extended by non-bank lenders, which can be called the weakest link in the financial sector, begin to be not repaid and the economic slump continues next year, defaults on secured loans or bank loans will occur.
Nonetheless, the balance of credit card companies’ card loans (long-term card loans) grew 11% year on year to 27 trillion won. Of the amount, the balance of loans to those with three or more loans increased 13% to 16 trillion won. This is because credit card issuers whose profitability has fallen sharply due to lower credit card commissions have increased card loans.
“The increase in savings bank's risk shows that not only small and medicum-sized enterprises (SMEs) that supply parts to big companies but ordinary people and vulnerable people working for them are facing more difficult situations,” said Sung Tae-yoon, a professor at Yonsei University. “It will not be easy to reduce savings bank's risks as next year will see a rise in overall cost such as interest rate hikes and an uptick in the minimum wage.”