Overdraft balances rise from 63.6 trillion to 69.7 trillion won

Balances jump as share prices begin to correct

Nearly 68 trillion won in unused credit lines remains available

Warning signs emerge in bank credit loan delinquency rates

An ATM at a bank branch in Seoul. [Yonhap]
An ATM at a bank branch in Seoul. [Yonhap]

Outstanding balances on bank overdraft accounts — a common source of quick cash for ordinary households — have swelled to nearly 70 trillion won ($52.3 billion) so far this year, raising concerns that the loans represent a blind spot in the country's debt management framework, critics say.

According to data on bank overdraft utilization rates that People Power Party lawmaker Park Sung-hoon of the National Assembly's Political Affairs Committee obtained from the Financial Supervisory Service, outstanding overdraft balances at domestic banks rose from 63.64 trillion won at the end of last year to 69.73 trillion won at the end of July — an increase of 6.09 trillion won in just seven months.

Over the same period, the number of overdraft accounts grew only marginally, from about 4.87 million to about 4.89 million — a gain of 24,317 accounts, or 0.5 percent. The number of accounts barely budged while the amount actually borrowed jumped 9 percent. Analysts say this indicates that existing overdraft holders are drawing more heavily on credit lines they already have, rather than a wave of new accounts being opened.

The average balance per account also jumped sharply. The per-account balance, which stood at about 13.06 million won at the end of last year, climbed to about 14.24 million won by the end of July — meaning the average debt per account rose by 1.17 million won, or 9 percent, in just seven months.

The surge in overdraft balances is widely attributed to a wave of debt-fueled investing, as the Kospi more than doubled over the past year and drew a broad swath of investors into leveraged positions.

The increase in overdraft balances this year was concentrated in the April–July period, when share price volatility widened. Balances grew by 5.78 trillion won during those four months, accounting for 95 percent of the cumulative increase for the year. Even in July, when share prices fell sharply, overdraft balances still rose by 1.15 trillion won.

Despite the sharp rise in outstanding balances, the pool of funds borrowers could still draw on stood at nearly 68 trillion won.

According to data obtained from the Financial Supervisory Service by Han Chang-min, a lawmaker of the Social Democratic Party also on the Political Affairs Committee, the total contracted overdraft limit at the end of August stood at 132.1 trillion won.

Of that, the actual outstanding loan balance was 64.2 trillion won, leaving 67.9 trillion won — 51.4 percent of the total — still unused.

However, as the share price correction has dragged on, the pace at which overdraft lines are being drawn down slowed in August. Outstanding balances fell by 400 billion won, from 64.6 trillion won at the end of July to 64.2 trillion won at the end of August.

The utilization rate — the ratio of outstanding balances to contracted limits — also edged down 0.1 percentage point, from 48.7 percent to 48.6 percent.

The sharp expansion in overdraft balances is expected to bring bank soundness concerns to the fore. According to the Financial Supervisory Service, the delinquency rate on other loans, including unsecured credit loans, rose from 0.76 percent at the end of March to 0.90 percent at the end of May. It then fell back to 0.77 percent in June as banks moved to write off and sell delinquent bonds.


hyuk@heraldcorp.com