S. Korean loans to low-credit borrowers rise in second half of 2015 on tightened bank loans

Loans to people with low credit scores in South Korea rose in the second half of last year, indicating low-credit borrowers moving to high-rate loans amid the tightened standards for bank loans, financial regulator data showed on Wednesday.

Loans extended by private lenders reached 13.25 trillion won (11.4 billion U.S. dollars) as of end-2015, up 7.3 percent from six months earlier, according to the Financial Services Commission (FSC).

Private lenders refer to lenders, such as Rush & Cash, which impose much higher lending rates than banks but lend money to people with low credit scores in capable of borrowing money from banks.

Outstanding loans by private lenders continued to increase from 8.69 trillion won at the end of 2012 to 13.25 trillion won as of end-2015.

It indicated low-credit borrowers turning further to high-rate loans extended by private lenders as banks tightened loan standards amid the record-breaking household debts.

Despite the massive household debts, the Bank of Korea (BOK) cut its benchmark interest rate by 25 basis points to a new record low of 1.25 percent earlier this month to stimulate the lackluster economy.

The number of private lenders stood at 8,762 as of end-2015, up 69, or 0.8 percent, from six months ago. The number of lenders holding assets of more than 10 billion won reached the record high of 169.

The number of people who borrowed money from private lenders came in at 2,679,000 as of end-2015, up 2.5 percent from six months earlier.

About two-thirds of borrowers said that it borrowed money from private lenders for the cost of living, while 8.2 percent replied that his dependence on high-rate loans was to repay low-rate debts. Endit