|A passenger walks past an electric sign of the nation's largest private moneylending brand, Rush & Cash, operated by Apro Financial, in central Seoul in this file photo. Yonhap|
By Lee Min-hyung
Private moneylenders are teetering on the brink of collapse, as their profitability keeps worsening in the aftermath of the government's movement to lower the maximum interest rates they can charge.
Apro Financial, the nation's largest private moneylender best-known for its brand Rush & Cash, will close its loan business by the end of 2024.
Other lenders, including the Japan-based Sanwa Money and Lead Corp, are also reducing their moneylending businesses amid worsening earnings. Starting from March 2019, Sanwa has stopped offering new loans to private borrowers, focusing only on retrieving existing ones. The two companies are the second and third largest private moneylenders here, respectively, in terms of assets.
Industry insiders said the market players are scaling down and withdrawing from the moneylending business, largely due to the unfavorable market conditions caused by the continuous reduction in the maximum interest rate.
For the past decade, the government has drastically cut the rates to protect consumers ― in 2007, the maximum interest charged was an annual 66 percent. The government has since cut this to 24 percent.
"The rate decline is the biggest reason behind the downfall of the loan services provided by major private moneylenders," a spokesman at the Consumer Loan Finance Association said.
The rise of the second-tier loan service providers, such as savings banks and credit card companies, has also been a continuous threat to private moneylending.
The official raised concerns that borrowers with low credit ratings would have to turn to illegal moneylending services in the future.
"Private moneylending services were the de facto last resort for such people to legally borrow money," he said.
Major commercial and savings banks are reluctant to lend money to people with low credit ratings. But with private lenders opting to halt their services, these people are expected to seek out illegal lenders, he said.
"This may cause social problems, as the people will not be able to find any official and legal routes to borrow money in the aftermath of business pullout by private moneylenders," he said.
As of now, the private lenders have little interest in resuming their loan business, viewing it as less promising because they cannot charge higher interest rates.
Things are no different at other existing top-tier local private lenders such as Welcome Creditline and Joy Credit. The latter has recently joined the move to shutter its loan business.
The nation's fifth-largest private moneylender stopped offering new loans at the beginning of the month.