"Strengthening Loan Screening"... What Are the Second Half Management Strategies According to the Heads of the 5 Major Banks?

Blocking Non-Performing Loans Amid COVID-19 and Potential Interest Rate Hikes
Partnerships with Cryptocurrency Exchanges Require 'Caution' and 'More Caution'
Focus Also on Strengthening Digital Competitiveness in the Second Half

[Asia Economy Reporter Park Sun-mi] The heads of South Korea's five major commercial banks have identified strengthening the management of non-performing loan risks as a key task for the second half of this year, which is interpreted as a response to the increased risk posed by the record-high household debt amid the resurgence of COVID-19. In fact, with the fourth wave of COVID-19 leading to stricter social distancing and business restrictions, borrowers' repayment capacity has become increasingly vulnerable, raising the likelihood of non-performing loans snowballing. In particular, since new loans are expected to be tightly restricted, the threshold for loan applicants to access banks is anticipated to rise further.

They also expressed their intention to take the lead with proactive digital strategies ahead of the full-scale competition for dominance with big tech companies (large information and communication enterprises) in services such as MyData and debt refinancing platforms. However, they showed a cautious approach toward partnerships with cryptocurrency exchanges, which remain a "hot potato."

COVID-19 and Interest Rate Hikes: "Defending Against Non-Performing Loans"

In a survey conducted on the 14th by Asia Economy targeting the heads of the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?the bank CEOs focused on preventing the increase in household debt during the interest rate hike period from leading to an expansion of non-performing loan risks.

According to the Financial Supervisory Service, as of the end of April, the delinquency rate on won-denominated loans at domestic banks (based on principal and interest overdue by one month or more) was 0.30%, up 0.02 percentage points from 0.28% at the end of the previous month. During the same period, the amount of newly delinquent loans (1.1 trillion won) increased by 200 billion won compared to the previous month. Bank CEOs are concerned that if COVID-19 resurges, leading to increased unemployment and closures of self-employed businesses, credit quality will deteriorate.

Accordingly, following the financial authorities' directives, loan strategies that had been tightened will be operated more conservatively. KB Kookmin Bank CEO Hur In said, "New loans will be executed considering the borrower's repayment capacity." NH Nonghyup Bank CEO Kwon Jun-hak also stated, "We will operate loans by strengthening screening and interest rate policies for household loans, which are showing rapid growth."

The Bank of Korea's recently released "Loan Behavior Survey" also indicated that the domestic banks' expected credit risk index for the third quarter (18) rose by 8 points compared to the second quarter (10), signaling that loan thresholds will increase. The bank CEOs noted that although the risk of a sharp increase in household sector risk due to interest rate hikes in the second half is low because rates have been very low, if interest rates rise multiple times within a short period, household non-performing loans may increase next year, especially among low-credit borrowers, multiple debtors, and the self-employed, and they called for preparations against this.

◆ Fierce Competition for Survival with Big Tech: "All-Out Attack"

The heads of the five major banks announced aggressive responses to the full-scale competition with big tech companies. With the launch of services such as MyData and debt refinancing platforms scheduled for the second half of this year, fierce battles for survival between commercial banks and big tech are expected. CEO Hur emphasized, "The MyData business will bring significant changes to the banking business system," adding, "In the second half of this year, it is very important to become a platform company chosen by customers in the competition to secure leadership in MyData."

They anticipated that digital competition would intensify further due to the accelerated entry of big tech and fintech into the financial industry and the implementation of the MyData business. Woori Bank CEO Kwon said, "One of the most important tasks for the financial sector in the second half of this year and next year is strengthening digital capabilities," adding, "It is time to prepare products that significantly improve services, convenience, and accessibility from the customer's perspective, moving away from the traditional financial service provider standpoint."

The bank CEOs also mentioned that establishing internet-only banks through business division by the banks themselves could be an alternative to create new businesses in a competitive environment on par with big tech.

Shinhan Bank CEO Jin Ok-dong said, "For banks to pursue disruptive innovation and create new businesses that enhance competitiveness in a competitive environment equal to big tech, it is necessary to relax regulations related to internet-only banks so that banks can choose from various options."

Regarding partnerships with cryptocurrency exchanges, which sparked the "debt investment" (borrowing to invest) frenzy, the banks expressed a cautious stance. Cryptocurrency exchanges must obtain Information Security Management System (ISMS) certification and real-name accounts by September 24, according to the Act on Reporting and Using Specified Financial Transaction Information, and report to the Financial Intelligence Unit (FIU).

Banks are reluctant to issue real-name accounts because they would bear the responsibility for verifying the exchanges. Hana Bank CEO Park Sung-ho said, "It is difficult to consider cryptocurrency as incorporated into the regulated market, so we are not reviewing partnerships with exchanges." Woori Bank CEO Kwon Kwang-seok also expressed concerns, saying, "The risks of financial accidents such as money laundering are burdensome."

Regarding the accelerated consolidation and closure of offline branches since last year, the bank CEOs emphasized that it is an unavoidable reality for efficient operation.

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