[Geuman Report] "Internet Bank Loan Delinquency Rate Higher Than Commercial Banks... Management Needed"

The loan delinquency rate of internet banks remains about twice as high as that of commercial banks. There are concerns that the profitability of internet banks may deteriorate in the future due to increased loan loss expenses and a narrowing interest rate spread between deposits and loans, highlighting the need for active management through the disposal of non-performing loans.

According to the Bank of Korea's Financial Stability Report on the 24th, the delinquency rate on loan assets of internet-only banks stood at 0.67% at the end of the third quarter, slightly down from 0.73% in the previous quarter, but still higher than the 0.33% recorded by commercial banks.

In particular, the delinquency rates for loans to individual business owners and household credit loans were higher compared to commercial banks. The delinquency rate for household credit loans in the third quarter was 0.40% for commercial banks, whereas internet banks recorded 1.02%. For loans to individual business owners, commercial banks had a rate of 0.47%, while internet-only banks had 1.85%. This is because internet banks increased the proportion of household credit loans and loans to individual business owners with low credit scores during their business expansion.

원본보기 아이콘

However, considering the active disposal of non-performing loans and sound loss absorption capacity of internet banks, the risk of insolvency due to a decline in asset quality appears to be low. The non-performing loan write-off and recovery rates for household and individual business owner loans at internet-only banks were 40.0% and 49.7%, respectively, in the third quarter, up from 30.9% and 34.8% in the same period last year. The loan loss provision ratio, which indicates the capacity to respond to loan defaults, was 234.6% in the third quarter, higher than the 198.4% recorded by commercial banks.

Moreover, the net income of internet banks has recently increased. From January to September this year, the net income of internet banks was 512.49 billion KRW, about 1.8 times higher than the 287.6 billion KRW recorded in the same period last year. This was due to interest income expanding more significantly despite the increase in loan loss expenses. Loan loss expenses rose by 130 billion KRW to 730 billion KRW in the third quarter this year compared to 600 billion KRW in the third quarter last year. Interest income increased from 1.53 trillion KRW to 1.91 trillion KRW during the same period.

However, the profitability of internet banks faces downward pressure due to increased loan loss expenses, narrowing interest rate spreads between deposits and loans, and intensified competition in the mobile banking market. The net interest margin (NIM) adjusted for loan loss expenses was 1.21% in the third quarter, lower than the 1.39% recorded by commercial banks. The net interest spread (NIS) on a balance basis narrowed by 0.12 percentage points to 2.17 percentage points in the third quarter from 2.29 percentage points in the previous quarter.

A Bank of Korea official stated, "After reviewing the liquidity risk, loan asset quality, and profitability of internet-only banks, the overall situation is judged to be sound, but vulnerabilities in specific areas need to be strengthened. To prevent liquidity risk, management should ensure that the maturity mismatch between assets and liabilities does not significantly widen. To strengthen loan asset quality, active disposal of non-performing loans and management of loan loss expenses are necessary to prepare for potential profitability deterioration in the future."

Toss Bank Headquarters, Gangnam-gu, Seoul. Photo by Jinhyung Kang aymsdream@

원본보기 아이콘

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.