Mid-to-Low Credit Borrowers' Homework Left for Internet Banks... "Soundness Management is Key"

[Asia Economy Reporter Kiho Sung] Internet-only banks are struggling to meet their target ratios for mid-interest rate loans by the end of the year. It is pointed out that achieving the target is practically difficult and various incentives need to be introduced.

According to the financial sector on the 8th, Kakao Bank's proportion of mid-interest rate loans in the third quarter was 13.4%. Although this is a significant increase compared to 10.0% in the first quarter and 10.6% in the second quarter of this year, it is far short of the year-end target of 20.8%. K Bank, which has a target of 21.5% by the end of this year, is also facing difficulties. K Bank recorded 18.2% in the first quarter but the figure dropped to 15.5% in the second quarter.

The situation is even more difficult for another internet bank, Toss Bank. Toss Bank exhausted the total loan limit of 500 billion KRW allocated by the financial authorities just ten days after its launch and has suspended loan operations. Toss Bank's proportion of mid-interest rate loans was 28.2%, far surpassing other banks. However, the target is 34.9%, and since loan operations have been suspended, it is practically impossible to increase the proportion further. During its business days, Toss Bank's share of mid-to-low credit borrowers reached as high as 33.3%.

Earlier, in May, the financial authorities announced in the "Internet-only Banks’ Plan to Expand Loans to Mid-to-Low Credit Borrowers for Innovative Inclusive Finance" that "if internet-only banks fail to implement the plan (to expand loans to mid-to-low credit borrowers), this will be considered when granting approvals for new businesses." Along with this, as an incentive, they stated that "a partial exception will be considered for the supply amount to mid-to-low credit borrowers when managing household debt growth rate targets."

So far, it is difficult to predict what stance the financial authorities will take if internet-only banks fail to meet their targets. Financial sector insiders point out that explanations regarding penalties or incentives from the authorities are not clear.

However, it is noted as a side effect that internet banks are increasing loan loss costs by taking measures such as suspending high-credit loans to increase the proportion of mid-interest rate loans, which could hinder growth.

Hyejin Park, a researcher at Daishin Securities, recently forecasted in a report that "mid-interest rate loans will increase loan loss costs, so future management of soundness such as delinquency rates will be crucial."

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