Inbound Banks Compete in Deposit Products... "Impact of Expanding Mid-Interest Rate Loans" (Comprehensive)

Focusing All Efforts on Securing Funds to Meet Household Loan Growth Targets
and Increase the Proportion of Medium- to Low-Credit Borrowers

[Asia Economy Reporter Kiho Sung] Internet-only banks are intensifying their deposit competition by launching products with various deposit interest rate benefits. This is because securing customers and deposits is essential to significantly increase mid-interest loans starting this year. Additionally, as high-credit loans are being gradually suspended in accordance with the government's household loan management policy, there are expectations that the deposit competition to raise funds may continue to be fierce.

According to the financial sector on the 14th, the most attention-grabbing deposit product in the banking sector is Toss Bank's "2% Annual Interest Account," launched this month. Regardless of maturity or amount, simply depositing money into this demand deposit account earns an annual interest rate of 2%. Interest is calculated daily and paid monthly. Compared to the market banks' demand deposit interest rates of around 0.1% per year, this is a remarkable rate, attracting 1.1 million financial consumers to pre-register.

Following Toss Bank's bold product launch, existing internet banks are also increasing the benefits of their deposit products. Kakao Bank recently raised the limit of its demand deposit account "Safe Box" from the previous 10 million KRW to up to 100 million KRW. Safe Box offers an annual interest rate of 0.8% even if money is deposited for just one day. K Bank, in line with the Bank of Korea's base rate hike, raised its deposit interest rates once more. The "CodeK Time Deposit" interest rate was increased by 0.2 percentage points in August and an additional 0.1 percentage points from the 1st of this month. Depositing money for over one year yields an interest rate of 1.5%. Considering that regular deposit interest rates at market banks remain below 1%, this is an unusual trend.

The financial industry views the deposit competition among internet banks as a challenging task to meet the annual growth target for household loans while increasing the proportion of loans to low- and mid-credit borrowers. While profits from high-credit loans could be used to fund loans to low- and mid-credit borrowers, the suspension of high-credit loans means that funds must be secured through high-interest deposits.

In fact, internet banks are progressively announcing the suspension of high-credit loans. Kakao Bank has halted credit loans and overdraft accounts for high-credit customers until the end of the year. K Bank has lowered the credit loan limit, which was up to 250 million KRW, to "within annual income." Newly launched Toss Bank exhausted about 33 billion KRW of its 50 billion KRW loan limit within a week. Toss Bank has suspended the sale of new loan products under its existing loan services until the end of this year in accordance with the government's household debt stabilization policy. This includes credit loans, overdraft accounts, and policy finance products such as Saeitdol loans and emergency loans.

Moreover, Kakao Bank, K Bank, and Toss Bank must increase the proportion of loans to low- and mid-credit borrowers to 20.8%, 21.5%, and 34.9%, respectively, by the end of the year.

The market expresses concerns that high-interest deposit products will ultimately become a burden, potentially forcing internet banks into a structure where deposit competition causes long-term losses. Additionally, the government's policy to restrict high-credit loans while increasing loans to low- and mid-credit borrowers may deteriorate the quality of household debt. A financial industry official pointed out, "There is a possibility that low- and mid-credit borrowers might take out loans for investments or other purposes even if they do not necessarily need the money due to benefits such as interest support," adding, "For high-credit borrowers who genuinely need loans, the loan restrictions may push them to turn to private lenders in the worst case, worsening the quality of debt."

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