Strengthened Loan Screening and Suspension of High-Credit Loans... Digital Banks Focus on Medium- and Low-Credit 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. Although the government recently excluded jeonse loans from the total household loan volume regulation, there are prospects that the deposit bleeding competition to raise funds may continue as high-credit loans are being gradually suspended.

According to the financial sector on the 17th, the most notable 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 rate of about 0.1% per year, this is a groundbreaking rate. Toss Bank, which had been offering the service only to pre-registered customers, will fully open it from the 18th.

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 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 addition to raising interest rates in line with the Bank of Korea's base rate hike, increased deposit interest rates once more. The 'CodeK Time Deposit' interest rate was raised by 0.2 percentage points in August and an additional 0.1 percentage points from the 1st of this month. Depositing money for over a year yields an interest rate of 1.5%. Considering that market banks' time deposit interest rates 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 household loan growth target while increasing the proportion of loans to low- and mid-credit borrowers. While profits from high-credit loans secure funds for loans to low- and mid-credit borrowers, the suspension of high-credit loans means that funds must be secured through high-interest deposits. Kakao Bank, K Bank, and Toss Bank face the task of increasing 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.

In fact, internet banks are successively announcing the suspension of high-credit loans. Kakao Bank has halted credit loans and overdraft accounts for high-credit borrowers until the end of the year. K Bank also lowered the credit loan limit, which was up to 250 million KRW, to 'within annual income.' Toss Bank, which recently launched, has used up about 330 billion KRW out of its 500 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 Saetdol loans and emergency loans.

The market expresses concerns that high-interest deposit products will eventually become a burden, potentially forcing internet banks into a long-term disadvantageous structure due to deposit competition. 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 sector 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 money due to benefits like interest support," adding, "For high-credit borrowers who genuinely need loans, the suspension may push them to alternative lenders such as private loan companies, worsening the quality of debt."

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