Credit Disturbance `Red Light`

There is a concern that a credit disturbance will occur at the end of this year or early next year.

A credit disturbance occurs when a large number of individuals fail to make credit card payment or credit loan and thus go bankrupt. Interest rate for delay rise sharply, while card companies and banks lose efficiency as insolvent debentures increase.

As the economy is rapidly falling during the second half of this year, the interest rate for delay concerning loans made by credit cards and banks are rising.

▽ The Signs Of Credit Disturbance = According to a credit card official of a bank in the city, `There has recently been a sharp rise of multi-delinquents among new delinquents due to the simultaneous delay of several cards. Should the economic inefficiency continue for a long time, bank insurance companies which have given out much credit loans, not to mention credit card companies, will suffer from delinquencies`.

An official of Visa Korea also pointed out that, ``At the end of this year, if not July next year after the World cup is over, there will be a surge of individual bankruptcies. If we do not take care to manage delinquency and personal credit information from now on, a credit disturbance is very likely.`` He also made the following analysis ``Although the delinquency rate of credit cards are still between 4-8 per cent, and thus are lower than it was during the Foreign Exchange crisis, the rise of credit card expenditure from

6,000,000,000,000 won to 40,000,000,000,000 won suggests a much greater repercussions of delinquency.``

When financial institutions such as banks expend their loans, delinquency rates begin to rise after six months. However, rates have already begun to rise since March and April this year, and the sharp decline in economy since the third and fourth quarter further foretells a rapid increase in the rates.

▽ A Sharp Rise In The Number Of Delinquents

The delinquency rate of Kookmin Bank rose from 1.57 percent at the end of June to 2.57 percent in July, and the bank is now in a state of emergency with its delinquency administration. As of the end of June, the number of delinquents reached an unprecedented height of 2,750,000. Corporations and businessmen set apart, individuals alone amounted to 2,400,000 delinquents.

This was 400,000 more than March. In view of the fact that 1,080,000 delinquents were relieved from their debts, there is a clear increase in the number of recent delinquents.

The number of individuals reporting bankruptcy to the law court is rapidly increasing. 130 individuals have reported bankruptcy to the Seoul district court during the first half of this year. This is comparable to the 131 individuals who reported last year. At this pace, the number will exceed the 250 reports of 1998.

▽ Is There A Solution? = Samsung card employed the Triad system which allows flexibility of limit depending on individual credit history. Through this system, it brought down the delinquency rate to 3.7 percent at the end of June. This was the lowest rate among credit card companies. Apart from maintaining flexibility in controlling the limit depending on the individual`s credit history, it is also necessary (according to an official of financial supervisory committee) △to maintain information about multi-delinquents, and △ to manage credit information through individual credit check companies such as the US Credit Bureau.

Kim Byung-Yeon, the team leader of financial research institute bank stated, ``A loan readjustment must be applied to household just as it is applied to companies if we are to avoid severe social problems.`` As the number of theft last year (173,965) shows a twofold increase to that of 1999 (89,395), it is likely that crimes related to survival means will increase sharply.

hcs@donga.com