Internet Banks Accelerate Efforts to Expand Mid-Interest Rate Loans

[Asia Economy Reporter Kiho Sung] Internet-only banks are expanding mid-interest rate loans. This move appears to be a strategic effort to dispel the perception that their original purpose has been undermined by primarily handling loans for high-credit borrowers, and to counter the upcoming launch of Toss Bank in July.

According to the industry on the 16th, internet banks Kakao Bank and K Bank are successively announcing plans to expand mid-interest rate loans targeting mid- to low-credit borrowers. Mid-interest rate loans generally refer to unsecured loans offered at single-digit interest rates within 10% per annum to mid-credit borrowers, typically those with old credit grades 4 to 6.

First, Kakao Bank recently lowered the interest rates on loan products for mid- to low-credit borrowers by up to 1.2 percentage points. Mid- to low-credit borrowers are customers with a credit score of 820 or below (grade 4 or lower) according to Korea Credit Bureau (KCB) standards. While existing mid-interest rate loan rates ranged from 5% to 8%, the newly offered products from this day will have minimum rates lowered to the 4% range. Kakao Bank explained that low-credit borrowers who previously faced rates in the 9% range could now qualify for mid-interest rate loans in the 8% range due to this rate reduction.

Alongside this, Kakao Bank is reducing loan limits for high-credit borrowers to increase the proportion of loans to mid- and low-credit borrowers. The overdraft loan limit will be lowered from 100 million KRW to 50 million KRW, and general unsecured loan limits will be reduced from 100 million KRW to 70 million KRW. Previously, last month, the loan limit for mid-credit loan products was raised from 50 million KRW to 70 million KRW.

K Bank is also progressing with plans to expand mid-interest rate loans. K Bank aims to increase the proportion of mid- to low-credit customers with grade 4 or below to 30% by 2023 and plans to launch a policy mid-interest rate loan product called ‘Saitdol Loan’ within the year. Additionally, it operates products such as 'Credit Loan Plus' and 'Secondary Financial Institution Linked Loan Service' for mid- to low-credit borrowers.

Along with these efforts, internet banks are considering increasing interest rate and limit benefits following the Financial Services Commission’s announcement on the 26th of last month regarding the 'Mid-Interest Rate Loan System Improvement Plan,' which relaxes the requirements for mid-interest rate loans.

The Financial Services Commission has stated that it will provide incentives for mid-interest rate loans supplied to mid- to low-credit groups. These incentives include exempting mid-interest rate loans from household loan volume regulations or applying mid-interest loan performance in management evaluations.

This content was produced with the assistance of AI translation services.