Households Not Able to Pay off Debts Increase

Overdue household loan ratios have soared this year due to rising household borrowings and credit card delinquents. Banks recently recognized high overdue loan ratios and took emergency measures to control the ratios, but the ratios are expected to rise for the time being.

Analysts express their concerns that there could be a crisis of credit if high overdue loan ratios cause increased individual bankruptcies and thus worsened business performance of banks.

▽Individuals who cannot pay off their debts increase=Officials from the banking sector said that overdue household loan ratio of Kookmin Bank in February is forecast to reach 3%, 0.3% up from 2.7% in January.

The ratio has been on the rise last year, posting 1.8% in March, 1.89% in June, and 2.2% in December.

Kookmin Bank even established a taskforce which included officials from major business units to reduce overdue loan ratio.

Overdue loan ratio of Woori Bank is also expected to rise from 1.34% at the end of January to 1.5% at the end of February. As the ratio skyrocketed this year from 0.85% at the end of last year, Woori Bank issued special instructions for managing the ratio to its branches early this month.

Overdue household loan ratio of Chohung Bank is also projected to rise by 0.2~0.3% and that of Korea Exchange Bank is anticipated to be 1.7~1.8%, up from 1.5%.

The ratio of Shinhan Bank rose to 0.88% at the end of January from 0.72% at the end of last year, and is expected to reach 1.1% in February. Analysts said that loans based on real estate, which was considered the safest, could also be risky.

An official from a commercial bank said that loans based on large mansions in Gangnam area are becoming bad loans.

▽Credit card…two digit overdue ratio, snowballing deficit=Most card issuers including kookmin, Korea Exchange Bank, LG, Samsung and Hyundai cards see their business performance aggravating as overdue loan ratios are rising.

Overdue loan ratio including credit loans in Kookmin card company increased by 3.79% from 9.3% at the end of last year to 13.62% at the end of January.

The ratio of Korea Exchange Bank Card also rose by 2.6% from 7.3% to 9.9% during the same period. Due to these soaring overdue loan ratios, all the card issuers including top companies such as Samsung and LG cards recorded large-scale deficit in January.

Card issuers concern that the ratio will continue to rise due to regulation on household loan limits and difficult economic situation.

Kwu-Jin Lim Chi-Young Shin mhjh22@donga.com higgledy@donga.com