Biggest S.K. private lenders are actually from overseas

Reaping huge profits, foreign firms dominate Korea’s loan market

Even after a series of reforms meant to curb illegal practices, the private lending market has continued to grow, with unscrupulous loan practices affecting new socioeconomic classes.

The Korean Institute of Finance estimated the annual revenue of the national lending market at between 39 and 41 trillion won (US$39-41 billion). There are more than 40,000 private lending firms. That spells a tenfold increase compared with 1995, when the market scale was 4 trillion won. At that time, there were only about 3,000 private lending firms.

This explosion is the result of large-scale foreign capital coming into the Korean market and creating small to mid-scale lending companies en masse. Among these, a mere 16,367 were registered with the government as of the end of last June. Some 25,000 illegal and unregistered firms are conducting their usurious loaning with impunity; registered firms are no exception, either, also offering funds at exorbitant interest rates.

As the lending market rapidly expands and has even mobilized celebrities in its advertising, the ranks of applicants swell with no clearly delineated class boundaries. Previously, the pool of debtors was primarily occupied by small and mid-sized companies in need of a quick loan, but recently, they have been joined by students in need of financial loans, and middle-aged and elderly people requiring money for basic living expenses.

According to a survey conducted this year by the Financial Supervisory Service, 36 percent of the those taking out private loans are citizens in need of money for basic living expenses, whereas they occupied 20 percent of the total only one year ago. Traditional merchants struggling to make ends meet make up 66 percent of the pool. That is an increase by 2.6 times from the previous year, when they made up 25 percent.

The owner of one large-scale lending firm in Seoul’s Gangnam district said, "We only make loans to those who have jobs, but among our 3,000-odd debtors, there are very few holding steady long-term employment. In 2002, when we first began, we had many young people who had jumped from credit card to credit card, but recently, there are many 40- to 50-year-olds coming in that lack money for basic living expenses."

These types of market conditions are all too attractive to overseas lending firms. South Korea is unique in that its legal interest-rate cap is 66 percent, much higher than in other countries. Currently, 24 Japanese lending companies have been registered in South Korea, such as Sanwa Money and Apro FC Group. Penetrating the Korean market in 2002, Sanwa Money’s balance runs at 250 billion won. Apro FC Group is a lending "conglomerate," presiding over 7 companies such as Rush ’n’ Cash, Woman Credit [sic], Partner Credit, and Happy Lady. The firm’s balance alone reaches 450 billion won, and has made itself well known through its use of celebrities in its advertisements.

Large-sized foreign banks have also entered the Korean lending market. Last June, Merrill Lynch International Holdings established Peninsula Capital. One of Korean PF Financial’s main investors is Prime Financial Holdings Limited. This company is in turn the Singaporean offspring of the British financial group Standard Chartered Bank.

Kim Myeong-il, Director of the Korea Finance Union, said that only about two South Korean lending firms have balances of 10 billion won or more (Welcome Credit Line and Grand Capital). "Foreign-based lenders are supplied funds at low interest rates from their parent companies, and thus yield high profits."

This article was written by Joi Hye-jeong and translated by Daniel Rakove