Bad loans hit ￦600B at top 10 private lenders

Overdue loans at Korea’s 10 largest private lenders surpassed 600 billion won ($535 million) earlier this year, data showed yesterday, raising concern over the impact on household debt.

The amount of overdue loans at the 10 lenders, including market A&P Financial and Sanwa Money, reached 609.9 billion won as of January, up 52.1 percent from a year earlier, according to the data by industry sources and the Financial Supervisory Service.

The data also showed that the default rate of the private lenders jumped 3.45 percentage points on-year to 12.39 percent.

The data comes amid fears that heavy household debts are likely to cripple economic growth and domestic demand in Asia’s fourth-largest economy.

In the last few years, the growth rate of household debts at nonbank financial firms has outstripped that of lenders. Outstanding household loans at nonbank institutions stood at 402.3 trillion won as of the end of 2011, more than double 193.8 trillion won at the end of 2004. Over the same period, household debts at banks grew from 276.3 trillion won in 2004 to 455.9 trillion won at the end of 2011.

Market watchers attributed the sharper increase in household loans at nonfinancial firms to stricter government controls on lending and grim economic conditions.

“A growing number of people are depending on nonfinancial firms and private lenders as their income decreases. It seems a suspension of large private lenders also prompted more borrowers to rush to smaller players,” said Park Deok-bae, a researcher at Hyundai Research Institute.

Earlier this year, major private lenders had their operations suspended for six months for reaping illegal profits through “unfair” interest rates.

Yonhap