Increasing Savings Bank Loans for Vulnerable Local Groups... Establishing Credit Evaluation Model Organization in Q2

The Korea Federation of Savings Banks (KFSB) will form a Credit Scoring System (CSS) organization together with credit information companies (CB), fintech firms, and the Credit Information Service by the end of June. By the end of this year to the first half of next year, they plan to establish an advanced standard CSS model and distribute it to regional and small-to-medium savings banks. The distribution of the standard CSS is expected to increase the discovery of new filers (those with insufficient financial history) and the supply of financial services to low-income households, thereby strengthening the household credit loan business capabilities of small and regional savings banks. Regional and small savings banks have shown strong interest, stating they will consider adoption once the project becomes more concrete.

Kim Byung-hwan, Chairman of the Financial Services Commission, is attending and speaking at a meeting to enhance the role of savings banks held at the Government Seoul Office in Jongno, Seoul on the 20th. 2025.3.20 Photo by Jo Yong-jun

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According to the Financial Services Commission and the Federation on the 28th, a permanent joint CSS management organization composed of the Federation, CBs, fintech companies, and the Credit Information Service is scheduled to start operating in the second quarter. The selection process for companies has not yet begun. NICE Information Service and Korea Credit Bureau (KCB) are likely to be selected as CB providers. Among fintech companies, Naver Financial, Toss, and PFCT (formerly PeopleFund) are mentioned as candidates.

Once the organization is formed, work will begin to establish an advanced standard CSS framework. This process will include ▲setting the scope of customer data application ▲building a system for sharing business information ▲sampling key customer information (such as creditworthiness). The critical issue is how extensively customer data will be applied to the standard CSS. Discussions will be held on whether to apply data from all savings bank customers nationwide or only data from medium- and low-credit customers and small business owners. After the advanced model is completed, the Federation plans to send official letters to 79 savings banks to receive applications.

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If the selection of companies for the standard CSS management organization is completed in the first half of the year, the advanced standard CSS is expected to be distributed to savings banks nationwide from the end of this year to the first half of next year. The development period for CSS typically takes 6 to 12 months. For example, Accuon Savings Bank started CSS development in September 2023 and completed it in January last year. After stabilization work, it was applied in April of the same year, taking seven months from development to adoption. Korea Investment Savings Bank took about six months to renew its own CSS.

The cost of building the standard CSS is known to be about one-third to half of that of developing an in-house CSS. Although CSS development costs are confidential, it is known that a large Seoul-based savings bank spent approximately 7 to 8 billion KRW on its own CSS implementation. The industry speculates that the cost of the Federation’s ongoing standard CSS advancement project will be less than 1 billion KRW.

As of the end of last year, 77 out of 79 savings banks had established CSS models. Thirty-two large savings banks (with assets over 1 trillion KRW) and those affiliated with financial holding companies have their own developed CSS. The remaining 45 rely on the standard CSS provided by the Federation. Some regional savings banks among these 45 use both the standard and their own CSS.

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Once the standard CSS is advanced, the proportion of household credit loans in regional and small savings banks is expected to increase, strengthening their business capabilities. Household credit loans are more stable than corporate credit loans. As of the end of last year, the household credit loan ratio of 17 savings banks with assets under 300 billion KRW was 3.6%, whereas 18 savings banks with assets over 2 trillion KRW had a ratio of 34.4%. The top 10 savings banks had a household credit loan ratio of 78.9%.

Additionally, the phenomenon of a 'rate gap'?a sharp rise in loan interest rates for medium- and low-credit borrowers?is expected to decrease across the savings bank sector. As customer credit evaluation information increases and the credit scoring system improves, savings banks will be able to more accurately assess borrowers’ repayment ability, potentially lowering loan interest rates for medium- and low-credit customers. The average loan interest rate gap by credit score among savings bank customers widens sharply in the medium- and low-credit segments. The average interest rate for the bottom 40% credit score customers was 7.87%, while for the bottom 30% it was 14.72%, nearly double. In contrast, commercial banks showed similar loan interest rates for the bottom 40% (5.53%) and bottom 30% (5.97%) credit score customers.

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Furthermore, the project can help discover new filers who have fallen into financial blind spots and reduce the polarization of loan businesses between metropolitan and non-metropolitan savings banks. As of the end of last year, the loan business share of metropolitan savings banks was 65.7%, while non-metropolitan banks accounted for only 34.3%. Although the population distribution was similar?50.9% in metropolitan areas and 49.1% in non-metropolitan areas?the loan performance gap was nearly double. This indicates that regional savings banks have poor performance in supplying financial services to low-income households.

Regional and small savings banks welcome the government and Federation’s standard CSS advancement and distribution project. A representative from Honam Savings Bank, which uses both standard and in-house CSS, said, "Once the Federation-led standard CSS advancement and distribution project becomes concrete, not only our bank but also other regional savings banks will adopt it to reduce costs." A representative from Busan-Gyeongnam Savings Bank also said, "It will be a great help to regional and small savings banks that lack the capacity to build their own CSS."

A Federation official stated, "To see how effective the standard CSS advancement project is, we will need to observe it for 1 to 3 years after distribution," but added, "We definitely expect an increase in household credit loan performance among regional new filers."

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