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Outstanding loans by private lenders surge

Private lenders saw their outstanding loans snowball by more than 1 trillion won ($877 million) in the first six months of the year.

Outstanding loans extended by private lenders reached 8.63 trillion won at the end of June, up 14.2 percent from 7.56 trillion won at the end of December 2010, according to the Financial Supervisory Service.

The number of borrowers in the industry also increased by 267,000 from about 2.2 million to 2.47 million during the period, the FSS said.

Credit-based lending accounts for 85.5 percent, or 7.34 trillion won, and the rest was collateralized lending worth 1.25 trillion won.

Credit-based outstanding loans increased by 16.9 percent, or 1.06 trillion won. Average borrowing per customer rose from 3.04 million won to 3.14 million won.

The FSS bans private lenders from charging more than 39 percent in interest per annum, a tighter regulation from an earlier upper ceiling of 44 percent.

As a result, large private lenders sought to increase loans, according to regulatory officials.

Most commercial banks have not cut off lending to customers as long as they have sufficient deposits.

But they have set lending restrictions on borrowers with lower credit scores.

“When borrowers lose the chance to seek new loans in the banking sector until they pay their overdue debts, they have no choice but to resort to private moneylenders despite horrendous interest rates,” an FSS official said.

Further, students have been borrowing dramatically more to pay for college and living expenses, rekindling concerns over high debt among young people and the business practices of lenders.

The overdue rate for students’ payments also jumped to 15 percent in June 2011 from 12 percent a year before, more than double the institutions’ overall overdue rate, which stands at 7.2 percent.

The number of student customers shot up more than 57 percent on a year-on-year basis.

More than 42 percent of the loans extended to students were used to pay tuition and nearly 25 percent to cover living expenses.

But concerns remain about the lenders, which are third-tier financial institutions targeting high-risk customers and charging high borrowing costs.

That means students face higher rates given their low-credit status. Regulators estimate the students have to pay about 40 percent in interest rates for their loans because they have no regular income.

By Kim Yon-se (
Korea Herald Youtube