South Korea turns to fintech as household debt climbs to $ 1.6 billion

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His family business of bringing home drunk people was hit by the curfew and the closing of bars from Covid-19 due to social distancing, and Lee Young-mi * cost around 30 million won ( $ 26,000). I noticed that I was managing my personal debt.

A 56-year-old woman living in Suncheon, South Korea, was already struggling to pay off or refinance her four credit cards, but faced the prospect of these debts rising rapidly after her husband was diagnosed with cancer. Do.

“Few people drank late at night, so they had little income for over a year,” Lee said. “Now my husband will not be able to work at all for the next three months after his operation. ”

Lee’s story has spilled over to Asia’s fourth-largest economy as a whole, with self-employed workers, who make up nearly a third of the workforce, experiencing sharp drops in income due to coronavirus restrictions. . Today, Seoul has struggled for years to reduce household debt, which hit a record 1.765 trillion won ($ 1.6 trillion) in March, after fintech companies and peer-to-peer lenders were looking for answers.

Among them is the People Fund, which sells technology-based investment products backed by machine learning. This allows borrowers to refinance high interest loans from banks and credit card companies.

Since its inception in 2015, the company has loaned at least $ 1 billion to more than 7,500 customers. The product allows the borrower to switch from debt to a fixed rate amortizing loan with an annual interest rate of around 11% which is different from high risk loan. Variable rate loans, interest only, common in Korea.

PeopleFund received about 96.7 billion won from securities firm CLSA and, along with Lendit and 8Percent, is one of 250 shadow banks in the country to be licensed for peer-to-peer lending.

“The country’s most serious household debt problem is the overpriced unsecured non-bank loans. People Fund CEO Joey Kim told the Financial Times.

The boom in digital lenders and fintech in South Korea, where high-risk borrowers are often cut off from bank loans, is being encouraged by the national government.

“We hope that P2P lenders will help resolve the credit market dichotomy by expanding access to medium-interest loans for low-income people,” said an official from the Financial Monitoring Service.

South Korea’s household debt situation has become even more pressing since the onset of the pandemic, with increasing mortgages, stagnant salary coverage and investments. Strong growth stock market. Korean households are the most indebted in the world, with an average debt of 171.5% of their annual income.

South Korea’s household debt-to-GDP ratio stood at 103.8 percent at the end of last year, compared to an average of 62.1 percent in 43 countries polled by the Bank for International Settlements.

Many of the new debts were dangerous. According to the Bank of Korea, unsecured mortgages from non-bank financial institutions stood at 116.9 trillion won in March, up 33 percent from four years ago, most of which are mortgage loans. high interest from poor borrowers.

Overcoming the problems has become of national importance. In a rare warning in June, the central bank said the combination of high asset prices and excessive borrowing risks was causing massive sell-offs in the market and rapid deleveraging.

“If the fiscal imbalance worsens further, it could worsen the prospects for economic growth in the medium and long term,” Lee Ju-yeol, president said in July.

However, national economic planners are struggling to contain debt-fueled asset bubbles without compromising South Korea’s asset bubble. Vulnerable economic recovery.

The government has tried to deal with the danger by toughening lending rules. In July, regulators lowered the country’s maximum legal interest rate, which private lenders can charge customers, from 24% to 20%.

Economists have warned that rising debt levels will make South Korea more vulnerable to economic shocks.

They also warn that if the BoK reverses the expected monetary easing in the fourth quarter, the asset quality of financial institutions could be affected by an increase in non-performing loans.

“We need to tighten monetary policy to curb the asset bubble, which will increase household debt and further curb consumption,” said Park Chung-hoon, head of research at Standard Chartered Bank in Seoul. paddy field. “The government faces a dilemma.

But for Lee Young-mi, the 11% rate proposed by the People Fund is still too high. “I don’t know how to pay off my debt.

* Renamed

South Korea turns to fintech as household debt climbs to $ 1.6 billion Source link South Korea turns to fintech as household debt skyrockets to $ 1.6 billion


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