A game-changer in lending

South Korea’s household debt is concerning in both quantity and quality. Its size — 1,223 trillion won ($1.1 trillion) — is astronomical. Bank of Korea Governor Lee Ju-yeol last week said it was concerning that the growth in household debt has not eased. Financial authorities claim the growth has subsided, but the debt size is a great burden to society.

Household debt grew 6.2 trillion won in July, slightly slower than the 6.5 trillion won increase in June, as the result of tougher loan regulations at banks since February. Consumers instead turned to the non-banking sector. Non-banking loans to consumers reached 15.9 trillion won in the first five months of the year, far exceeding the 8.8 trillion won in the first half of last year in a kind of balloon effect from the toughening in bank loans.

Quality in loans becomes a problem when consumer loans increase in the non-banking sector. Money is borrowed at a much higher interest rate. Lending from banks carries interest rates of less than 6 percent a year, while non-banking loans levy more than 15 percent. Interest burdens weigh heavier on consumers. The market needs to provide loans in the mid-tier interest level of between 7 percent and 15 percent.

Peer-to-peer fintech company 8Percent emerged as an option, offering to lend at a minimum interest rate level last week. It would give 100,000 won back if other places lend at lower rates. Some savings banks and consumer capital companies also offered loans at lower rates to prevent customers from shifting to online lenders.

Banks and authorities have been slow to provide loans in the mid-tier interest range on concerns of risk control. A fintech service has played the role of game-changer. Fintech services were considered peripheral in the finance industry. But P2P services can play a part to ease household debt and pave the way for a fourth-generation industrial revolution.

JoongAng Ilbo, Aug. 17, Page 30