Bank-InBank, Direct Competition in Mid-Interest Loans... "CSS Advancement is Key" (Comprehensive)

Shift to Focused Attack Strategy by Commercial Banks
Considering Exemption from Total Volume Regulation Next Year

[Asia Economy Reporter Kiho Sung] As financial authorities have expressed their intention to consider excluding loans to middle- and low-credit borrowers from next year's total household loan volume management, the mood is mixed between commercial banks and internet-only banks. While they welcome the prospect of having more leeway in loan operations, competition is inevitably expected to become fiercer. In particular, commercial banks are also planning to target middle- and low-credit borrowers next year, causing internet-only banks to be on high alert.

According to the financial sector on the 13th, financial authorities are currently reviewing a plan to exclude loans to middle- and low-credit borrowers and products for low-income households from next year's total household loan volume management and to provide incentives. Earlier, on the 3rd, Financial Services Commission Chairman Seung-beom Ko announced this plan and stated, "We will finalize specific measures within this month after consulting with the financial sector."

Although specific measures have not yet been finalized, the industry's response is positive. The financial authorities introduced this measure because they judged that the strengthening of household debt management was causing difficulties in loans to middle- and low-credit borrowers. In particular, internet-only banks have been in a difficult situation due to total volume management, even though they must increase the proportion of loans to middle- and low-credit borrowers by more than 20% as promised with the government. According to the Korea Federation of Banks, as of the third quarter, loans to middle- and low-credit borrowers by internet-only banks were in the 10% range, about half of this year's target. Furthermore, the financial authorities have set next year's total household loan volume management target lower at 4-5%, compared to 5-6% this year, making it even more challenging to achieve the goal.

Internet-only banks have been concentrating their entire capabilities this year to expand loans to middle- and low-credit borrowers as promised to the financial authorities. Because of this, it was difficult to actively conduct loan operations under total loan volume management. Especially since the third quarter of this year, they have practically stopped loans to high-credit borrowers to meet the proportion of loans to middle- and low-credit borrowers.

If mid-interest rate loans are excluded from the total volume management limit, it will provide relief for internet-only banks. A representative from an internet-only bank said, "Although the final decision has not been made yet, we welcome the direction of the financial authorities," and added, "If this direction is decided, we will be able to further expand loans to middle- and low-credit borrowers next year."

However, the fact that they will have to enter into full-fledged competition with commercial and regional banks for loans to middle- and low-credit borrowers is a burdensome situation. The industry expects that if loans to middle- and low-credit borrowers are excluded from the total volume management limit for fairness, other banks will also receive the same benefits.

In particular, commercial banks are preparing to significantly increase loans to middle- and low-credit borrowers. According to the office of Democratic Party lawmaker Gwansuk Yoon, the five major commercial banks (KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup Bank) have so far reduced the proportion of loans to middle- and low-credit borrowers and increased the proportion of loans to high-credit borrowers. Because of this, internet-only banks have been able to increase loans to middle- and low-credit borrowers without much competition.

However, following the financial authorities' policy, commercial banks have recognized loans to middle- and low-credit borrowers as a new growth opportunity, reversing the atmosphere. Recently, KB Kookmin Bank President-designate Jaegun Lee said, "For low-income customers with credit ratings below grade 7, there is a limit open, so it should be explored as a growth opportunity," adding, "Refining the Credit Scoring System (CSS) to identify customer groups is a key factor differentiating bank performance." It is also known that other commercial banks have begun efforts to advance their CSS.

Therefore, the industry expects fierce competition over loans to middle- and low-credit borrowers to be inevitable. An industry insider said, "There is a limit to increasing high-credit loans, and competition for loans to middle- and low-credit borrowers, which are excluded from total volume management, is a foregone conclusion," adding, "To generate profits from loans to middle- and low-credit borrowers, refining the CSS is crucial, so commercial banks, which hold large amounts of data on existing borrowers, are expected to launch strong offensives."

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