Second-tier household loans hit record

Savings banks’ lending to the household sector has reached record levels, despite coming with much higher rates than loans from commercial banks.

According to the Bank of Korea on Monday, mutual savings banks’ outstanding loans issued to households posted 11.3 trillion won ($10.2 billion) at the end of March, up 10 percent, or 1.02 trillion won, from the end of last year.

This marked an all-time high with an on-year growth rate of 26.1 percent.

After exceeding the 10 trillion won mark in December 2011, the outstanding savings bank loans stayed about 8 trillion won between 2012 and 2013 in the wake of a series of closures of insolvent or irregularity-ridden banks.

But loans from savings banks on high rates have surged again amid aggressive TV promotions and increased borrowing from the middle and low income households and self-employed people, according to market insiders.

BOK data showed that their outstanding loan balance has continued to climb in 2014 ― 8.9 trillion won as of March, 8.8 trillion won as of June, 9.4 trillion won as of September and 10.2 trillion won as of December.

The household debt owed to the secondary lenders is emerging as a major hurdle to the revitalization of private consumption, causing worries that many individuals could become credit delinquents.

The average annual rate charged by savings banks was 11.73 percent as of May. Further, the highest-charging 20 savings banks were found to have charged an average of 30 percent.

The figures far surpass the average lending rate of 2.96 percent in the first-tier commercial banking sector. Savings banks are often referred to as second-tier lenders.

Meanwhile, the borrowers who are refused loans in the secondary banking sector often resort to loan sharks that charge rates of about 30 percent to 35 percent per year.

A commercial bank executive said that borrowers with low credit scores might eventually face higher interest rates and a growing possibility of defaulting on their loans.

A group of lawmakers has continued to urge the Financial Services Commission to work harder to induce savings banks, capital services firms and private lenders to cut rates.

Some proposed bills to revise the laws on secondary and private lending businesses.

By Kim Yon-se (kys@heraldcorp.com)