Nashinpyung "Expansion of Loans to Medium and Low Credit Borrowers, Profitability Burden Factor"

[Asia Economy Reporter Kwangho Lee] Concerns have been raised that the expansion of loans to middle- and low-credit borrowers could negatively impact the profitability of internet-only banks such as KakaoBank and K Bank.

Seonji Park, Senior Researcher at NICE Credit Rating, held an e-seminar on the afternoon of the 22nd titled "Four Years After the Launch of Internet-Only Banks, Have Our Expectations Been Met?" and stated, "There are concerns about the deterioration of profitability and soundness of internet-only banks, which have taken on the task of expanding loans to middle- and low-credit borrowers under the financial authorities' recommendations."

Internet-only banks have been evaluated as failing to fulfill their intended role of expanding loans to middle- and low-credit borrowers.

At the end of last year, the proportion of loans to middle- and low-credit borrowers (KCB grades 4 to 10) at KakaoBank and K Bank was 12.1%, which is low compared to the overall banking sector's 24.2%.

Researcher Park cited a lack of practical incentives to expand mid-interest rate loans and delays in building differentiated CSS (Credit Scoring System) as reasons why internet-only banks have not increased the proportion of loans to middle- and low-credit borrowers.

In response, financial authorities have ordered internet-only banks to manage the expansion of loans to middle- and low-credit borrowers, and KakaoBank and K Bank have committed to increasing their unsecured loans to these borrowers to 30% and 32%, respectively, by the end of 2023.

Toss Bank, scheduled to launch in September, has set an aggressive target to increase loans to middle- and low-credit borrowers from 34.9% at the end of this year to 44% by the end of 2023.

Researcher Park expressed concern, saying, "Toss Bank's proposal reflects confidence in its self-developed credit evaluation system, but there is a risk of missing profitability for a considerable period while increasing loans to middle- and low-credit borrowers."

Among internet-only banks, KakaoBank is seen as having the lowest risk related to the expansion of loans to middle- and low-credit borrowers.

Park explained, "KakaoBank, which holds more than 12 trillion won in high-credit household loans, has the capacity to respond to defaults in loans to middle- and low-credit borrowers," adding, "KakaoBank's asset size has surpassed that of Gwangju Bank."

He also mentioned the possibility of financial holding companies entering the internet-only banking sector.

Researcher Park said, "Financial holding companies have absorbed fintech advantages through investments and experience over recent years," and forecasted, "If they enter the internet banking business, they could gain an advantage based on their unique business competitiveness." However, he noted, "Entry will require preconditions set by financial authorities, and acquiring know-how in developing non-face-to-face products means that entry within a short period will not be easy."

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