Online Banks Hindered by Loans... "Mid-Interest Rates Should Be Excluded from Total Volume Regulation"

Authorities Tighten Loan Restrictions Under Pressure
Need to Increase Mid-Interest Rates... Deliberation Ongoing

[Asia Economy Reporter Kiho Sung] As all banks have limited credit loan limits to within annual income, internet-only banks have also begun tightening loans in earnest. The aggressive loan market strategy of internet banks, which aimed to aggressively target the loan market under pressure from government authorities, has inevitably undergone a complete revision. They have been voicing that since the government policy has ordered an increase in mid-interest rate loans, such loans should be excluded from the total volume regulation.

According to the financial sector on the 6th, Toss Bank, which officially launched the day before, set the credit loan limit at 270 million KRW. The loan limit is highly likely to be restricted to ‘within 100% of annual income’ as recommended by financial authorities to banks. Hong Min-taek, CEO of Toss Bank, stated, "We are under the same regulatory environment as other banks," and added, "We will cooperate with the policy direction promoted by the government."

Earlier, financial authorities recommended Toss Bank to limit the total household loan amount to 500 billion KRW by the end of the year. Through the business plan submitted during the approval process, Toss Bank announced that the target amount for total credit loans by the end of this year is 469.3 billion KRW, of which 34.9%, or 163.7 billion KRW, will be used for loans to mid- and low-credit borrowers.

The situation is similar for other internet banks. K Bank recently drastically reduced the limit of general credit loan products from 250 million KRW to 150 million KRW. The limit for overdraft loans and the credit loan plus product, which is a mid-credit loan product, was also reduced from 150 million KRW to 100 million KRW respectively. K Bank plans to reduce the maximum limits of these products to within annual income soon.

Kakao Bank has suspended new overdraft loans until the end of the year. Industry insiders view that Kakao Bank’s reason for further suspension, following last month’s reduction of the overdraft limit from 50 million KRW to 30 million KRW, is to manage mid-credit loans. As of the end of August, Kakao Bank’s mid-credit loan ratio was 12.4%. It is widely expected that raising it to the 20.8% promised to financial authorities by the end of the year will not be easy.

There are concerns in the industry about whether including mid-interest rate loans in the total household loan volume regulation is appropriate. Since one of the licensing conditions for internet banks is the expansion of mid-credit loans and the government is actively demanding expansion, including these loans in the total volume regulation would make growth itself difficult in the loan market.

An internet bank official pointed out, "Just as 5% of 1 million KRW and 5% of 10 million KRW are different in scale, the loan amount available within the total household loan volume regulation for internet banks and commercial banks is worlds apart," adding, "Internet banks are a growing market now, and regulating them on the same level as commercial banks is tantamount to limiting their growth potential."

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