Households and Banks Can Become Bankrupt Together

As economic recession becomes prolonged, the rate of credit card arrears is sharply increasing. In addition, household loans from banks, including home equity loans, are jumping rapidly. Thus, it is deeply concerned that households and banks can go bankrupt together if economic recovery is delayed. According to the banking circles on Oct. 14, Koram Bank`s credit card overdue rate reached 4.44 percent as of last September, which was 2.14 percent increase over the end of last year`s 2.14 percent. Seoul Bank`s credit card arrears rate increased from 3.03 percent to 4.39 during the same period., and in Kookmin Bank`s case, it arose from 2.76 percent to 3.69 percent.

As the trend of low interest becomes long, banks facing difficulty in operating funds have augmented bank loans by the credit card cash advancing service whose interest is relatively high. And it has led to the increase of the rate of credit card overdue.

To the contrary, the rate of arrears in household loans is decreasing. Seoul Bank`s rate of arrears in household loans fell from 4.69 percent as of the end of last year to 1.17 percent in last September. In the case of Kookmin Bank, the rated decrease from 2.45 percent to 1.6 percent, and Shinan Bank, from 1.58 percent to 1.30 percent.

But the decrease of the rate of arrears in household loans is analyzed to have caused not by the decease of overdue balances, but rather by the expansion of home equity loans by 27.8 trillion won from January to September this year. Banks have concentrated their efforts on managing risks positively by expanding home equity loans less risky of being embezzled, rather than by reducing arrears.

A staff in charge of credit card at a city bank said, ``After banks have began reinforce credit card business, customers with relatively low credit are using credit cards issued by banks,`` and ``if economic slump becomes long, the bankruptcy of household finance is apprehended as customers increase cash advances or installment purchases through credit cards.``

hcs@donga.com