The Paradox of Inclusive Finance: A Warning from Surging Delinquency Rates and Expanding Bad Debt

A paradoxical situation is unfolding where the expansion of loans under the recent 'symbiotic and inclusive finance' policy is ironically increasing the instability of the financial system. According to a report by Maekyung, rapidly rising delinquency rates and a surge in bad debt are signaling a 'red alert'. This casts a shadow over policy efforts to improve financial accessibility for vulnerable groups, including those with low credit scores, and is analyzed as a result of excessive loan supply and a lack of risk management. Concerns are growing that this could escalate into a threat to the entire financial system, especially with the possibility of rising interest rates and economic recession.

The Shadow of Expanded Lending to Vulnerable Groups

'Symbiotic and inclusive finance' was undoubtedly a socially necessary policy. However, several problems that emerged during the policy's implementation are now causing the current crisis. First, excessive loan supply often occurred without prudent review. In the process of lowering the loan threshold for low-credit individuals, loans were executed without sufficient consideration of repayment ability. Second, the absence of a risk management system accelerated the increase in bad debt. Along with the easing of loan review criteria, post-loan management and supervision were also neglected. Third, changes in the external economic environment further exacerbated these problems. Rising interest rates and the possibility of an economic recession are factors that increase the burden of loan repayment and fuel the rise in delinquency rates.

The Ripple Effects of Expanding Bad Debt

The rise in delinquency rates and the expansion of bad debt do not simply end with the losses of financial institutions. It threatens the soundness of the entire financial system and can negatively impact the real economy. Financial institutions will reduce loan supply during the bad debt processing process, which will act as a factor hindering corporate investment and growth. In addition, increased household debt and falling asset prices can dampen consumer sentiment and deepen the economic recession. In particular, the recent downturn in the real estate market is amplifying these risks.

Future Challenges and Prospects

To overcome the current situation, a more fundamental solution is needed. First, loan review criteria must be strengthened, and risk management systems must be improved. It is more important to accurately assess repayment ability and thoroughly manage and supervise post-loan than simply lowering the loan threshold. Second, preparations must be made for changes in the external economic environment. Financial institutions should strengthen stress tests and make efforts to expand capital in preparation for rising interest rates and the possibility of an economic recession. Third, the government should continue its policy efforts to maintain the stability of the financial market. It should support bad debt resolution and restructuring and promote policies to strengthen the soundness of financial institutions.