Last year, the subrogation repayment rate of the Saemaul policy financial product, Hetsalron, surpassed 20% for the first time in history. The burden of debt on low-income people appears to be increasing due to continued high interest rates and high inflation.
According to data submitted by the Financial Supervisory Service and the Korea Inclusive Finance Agency to Yang Jeong-suk, a member of the National Assembly's Political Affairs Committee from the Reform Party, the subrogation repayment rate of 'Hetsalron15,' which supports the lowest credit borrowers, was 21.3% last year. This is an increase of 5.8 percentage points (p) compared to the previous year (15.5%).
The subrogation repayment rate of Hetsalron15 has shown an upward trend, rising from 5.5% in 2020 to 14.0% in 2021, and last year was the first time it recorded a rate in the 20% range. The subrogation repayment rate refers to the proportion of the amount that policy institutions such as the Korea Inclusive Finance Agency pay to banks on behalf of borrowers who fail to repay the principal.
The subrogation repayment rates of other Hetsalron products also rose simultaneously. The subrogation repayment rate of Hetsalron Youth, targeting young people aged 34 and under, increased to 9.4%, nearly double the previous year's 4.8%. The worker Hetsalron, available to low-credit wage earners, also rose from 10.4% to 12.1% during the same period.
The subrogation repayment rate of Hetsalron Bank, which supports low-income and low-credit borrowers with relatively better repayment ability to transition to first-tier financial institutions, was only 1.1% in 2022 but rose by 7.3 percentage points to 8.4% in one year.
As the livelihood of low-income people becomes difficult due to high interest rates and inflation, even borrowers who previously had stable repayment ability appear to have experienced a rapid deterioration in their situation.
The delinquency rates of the government's key policy financial products, small living expense loans and special guarantee products for the lowest credit borrowers, are also concerning.
The delinquency rate of the small living expense loan, introduced in March last year, was recorded at 11.7%. This product lends up to 1 million won (with an annual interest rate of 15.9%) on the same day to vulnerable groups in urgent need of funds, with a structure where only interest is paid monthly and the principal is repaid at maturity.
It was implemented to prevent low-credit borrowers, who find it difficult to use even private loan companies, from falling into illegal private financing. However, due to the easy loan structure, there were concerns about potential defaults caused by borrowers' moral hazard.
The subrogation repayment rate of the special guarantee product for the lowest 10% credit scorers was also recorded at 14.5%. Launched in September 2022, this product earned the nickname "open-run loan" as the monthly limit was exhausted on the first business day of each month when the monthly limit was reset.
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