From Total Volume Regulation to Loan Suspension... How Will Internet Banks Achieve Their Mid-Interest Rate Goals?

Challenges in Achieving Total Volume Regulation Inclusion
"Middle-Interest Rates Should Be Excluded" Voices Also Raised

[Asia Economy Reporter Kiho Sung] Internet-only banks are facing an emergency in meeting their mid-interest loan ratio targets set for this year. KakaoBank and K Bank are far from reaching their goals, and Toss Bank has already stopped loan operations. Industry insiders are raising their voices, saying that since achieving the targets is practically difficult, incentives such as excluding mid- and low-credit loans from the total loan volume regulation should be provided.

According to the financial sector on the 5th, KakaoBank's mid-interest loan ratio in the third quarter recorded 13.4%. Although this is a significant increase compared to 10.0% in the first quarter and 10.6% in the second quarter, it is far from the year-end target of 20.8%. K Bank, which has a year-end target of 21.5%, is in a similarly difficult situation. K Bank's ratio actually dropped from 18.2% in the first quarter to 15.5% in the second quarter.

The third internet-only bank, Toss Bank, has completely closed its loan window. This is because it exhausted the total loan volume limit of 500 billion KRW allocated by financial authorities within ten days of its launch. Toss Bank's mid-interest loan ratio was 28.2%, higher than other banks. However, with loan operations suspended, achieving this year's target of 34.9% has become impossible. During its operating days, the proportion of mid- and low-credit borrowers even reached as high as 33.3%.

Accordingly, these banks have entered an emergency mode to expand mid-interest loans during the remaining less than two months of the year. KakaoBank has practically stopped loans to high-credit borrowers, excluding jeonse and monthly rent loans. K Bank plans to suspend new or increased applications for overdraft accounts targeting high-credit borrowers from the 6th of this month until the end of the year.

They are also actively conducting promotions to attract mid- and low-credit borrowers. KakaoBank extended its first-month interest support benefit until the end of the year. K Bank is refunding two months' worth of interest on mid- and low-credit loans and is also providing the ‘Loan Safety Plan’ service free of charge until the end of the year to expand credit. The ‘Loan Safety Plan’ is a service where, if a customer who has taken out a loan (credit loan, credit loan plus) faces a situation where repayment is impossible due to a major accident, an insurance company steps in to resolve the loan repayment. K Bank bears 100% of the insurance cost.

Internet-only banks are focusing on mid- and low-credit loans as required by authorities but seem to be struggling because they cannot secure high-credit borrowers, who are more profitable. There are also criticisms about whether it is appropriate to include mid-interest loans in the total household loan volume regulation. Since one of the conditions for internet bank licensing is the expansion of mid-interest loans and the government is actively demanding expansion, including them in the total volume regulation makes growth in the loan market itself difficult.

An internet bank official said, "Internet banks need to be profitable to expand mid- and low-credit loans," adding, "We need to consider ways to exclude mid- and low-credit loans and refinancing loans (loan switching) from the total loan volume regulation."

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