More than a half of credit card loan users in South Korea pay debts with cash withdrawn from multiple financial institutions, data showed Monday, indicating that both credit card issuers and commercial banks are facing a growing default risk.
About 56 percent of the country’s 2.6 million holders of credit card loans were found to have received loans from more than three financial service companies, including credit card issuers and banks, between January and June, said Rep. Jeon Jae-su from the ruling Democratic Party, quoting data from the Financial Supervisory Service.
Credit card issuers and banks affiliated with their businesses offer loans with an annual average interest rate of 14 percent by assessing borrowers’ credit scores and transaction histories.
Despite the relatively high interest rate on credit card loan services, the number of people juggling with multiple debts has been rising rapidly over the years.
The tally came to 1.89 million in 2015, but surged by 36.3 percent to reach 2.58 million last year, Rep. Jeon said.
They borrowed nearly 30 trillion won in credit card loans as of June, up 39.2 percent from 21 trillion won in 2015, he added.
The total amount of credit card loans grew but the rate of money paid back remained low at 11.8 percent. The figure was even lower than the 26.6 percent estimated during the 2008 global financial crisis.
“Credit card firms are likely to see a rise in revenue, owing to increasing requests for credit card loans by the people who already are indebted. The current situation may add fuel to default risks,” Jeon said. “The financial authorities should draw up measures to help delinquent debtors get back on their feet so that they don’t resort to multiple loans.”
By Choi Jae-hee (email@example.com