P2P lending is risky, regulators warn, as bad loans hit 15.8%Bad debts are plaguing peer-to-peer (P2P) lending, and consumers are being warned to take care.
The Financial Services Commission (FSC) on Monday advised caution as the delinquency rate on P2P loans for 242 companies hit 15.8 percent as of March 18.
As the Korean central bank maintained a loose monetary policy, P2P lending attracted investors seeking higher interest, while small businesses and individuals were able to secure necessary funding that wasn’t being provided by commercial banks.
P2P lending has increased more than sixfold compared to the 1.68 trillion won ($1.33 billion) at the end of 2017, which was when the P2P market started to grow exponentially to 9.6 trillion won as of March 18.
The FSC noted that the overdue rate in property lending has increased more than loans to other asset categories.
As of the end of February, the average overdue rate of 16 P2P companies that only work in real estate was 20.9 percent, which is triple the 28 companies registered with the Korea P2P Finance Association.
The FSC said it will increase its monitoring of P2P lending ahead of the implementation of the Online Investment-Linked Finance and Protection of Users Act, also known as the P2P Act, in August.
Korea became the first in the world to create a legal foundation for P2P lending when the National Assembly approved the P2P Act on Oct. 31 last year.
Under the new law, P2P companies have to have a minimum of 500 million won in capital, while interest rates are capped at 24 percent. The change came after many lenders suffered losses on P2P loans due to fraud.
Since December, prosecutors have been investigating Pop Funding, which provided P2P loans to small- and medium-sized enterprises while holding tangible assets, including production machinery and company vehicles, for collateral.
Other major P2P companies were said to be struggling with P2P projects, especially those related to real estate.
“P2P lending projects do not guarantee principle and all responsibilities are on the lender,” said an FSC official. “The investor should verify if the company is registered with the FSC.”
BY LEE HO-JEONG [email@example.com]