The volume of debt that South Korean financial firms hand over to outside collection agencies rose by more than 7.6 trillion won ($5.3 billion) over the past year, with consumer lenders nearly tripling their outsourcing. Analysts attribute the shift to tighter rules on debt collection and a worsening business environment that are pushing firms to hand the work to specialized agencies.
Five sectors — banks, insurers, card issuers, consumer finance lenders and savings banks — newly outsourced a combined 59.6271 trillion won in debt to 22 collection agencies last year, according to data the Financial Supervisory Service submitted to the office of Park Jun-tae, a lawmaker on the National Assembly's National Policy Committee, on the 20th. That was up 7.6103 trillion won, or 14.6%, from 52.0168 trillion won a year earlier.
Fees paid to collection agencies by the five sectors rose 3.4% to 345.1 billion won last year from 333.6 billion won in 2024. Collection agencies, such as credit information companies, are contracted by financial firms to pursue overdue debts and are paid fees based on how much they recover. They differ from firms that buy debt outright and collect on their own account.
The increase was steepest among consumer finance lenders. Debt they newly outsourced to collection agencies reached 5.3802 trillion won last year, up 191.3% from 1.847 trillion won a year earlier and the largest amount since 2021. Their 3.5333 trillion won increase accounted for 46.4% of the total rise across the financial industry.
The surge cannot be explained by a rise in overdue debt alone. The delinquency rate at large consumer finance lenders with assets of 10 billion won or more fell 1.9 percentage points to 10.2% at the end of last year from 12.1% at the end of 2024.
Industry officials say both the workload and the cost burden from tighter regulation of consumer lending are at play. With the statutory interest rate ceiling of 20% a year making it harder to secure profits, lenders have moved to outsource collection to trim labor costs.
"Outsourcing means paying a fee only when the debt is recovered, while running an in-house collection team means paying salaries every month regardless of whether borrowers repay, so cost savings are the biggest factor," an official in the consumer finance industry said. "There is also the concern that if illegal collection practices arise while a lender collects directly, it can lead to sanctions such as a suspension of business or revocation of registration."
Banks and insurers also expanded their outsourcing. Banks newly outsourced 26.9686 trillion won last year, up 7.8% from 25.0124 trillion won a year earlier. Insurers' outsourcing rose 28.7% to 19.5195 trillion won from 15.1647 trillion won over the same period.
For banks and insurers, the shift is seen as reflecting a heavier debt-management burden as loan delinquency rates climb. The delinquency rate on won-denominated loans at domestic banks rose 0.06 percentage point to 0.50% at the end of last year from 0.44% at the end of 2024. The delinquency rate on insurers' loan assets rose 0.23 percentage point to 0.84% from 0.61% over the same period.
Some warn that outsourcing makes collection more aggressive. "You could argue that collection agencies have more expertise, but because they are paid fees based on what they recover, collection inevitably becomes more aggressive than when a financial firm does it itself," an official in the credit information industry said.