In the second quarter of this year, internet-only banks did not meet their objective regarding loan ratios for individuals with medium to low credit scores. Although expanding loans to this demographic was originally a primary focus for these banks, they now face a dilemma as widening the loan base could compromise their financial stability.
According to data from the Korea Federation of Banks, Tuesday, the proportion of such loans for medium to low credit customers at three internet-only banks ― KakaoBank, K Bank and Toss Bank ― stood at 27.7 percent, 24 percent and 38.5 percent, respectively.
In 2021, financial regulators mandated that the three internet-only banks set specific targets for extending loans for such customers as a condition upon their launch. The policy stipulates that failing to meet these benchmarks could result in penalties, including restrictions on launching new business initiatives.
However, each bank is currently falling short of these goals. The target ratios for this year have been set at 30 percent for KakaoBank, 32 percent for K Bank and 44 percent for Toss Bank.
In response to escalating household debt, financial regulators have recently tightened their oversight. They singled out the mortgage loans provided by internet-only banks as a significant contributor to skyrocketing household debt and criticized these banks for operations that diverged from their original purpose.
As a result, internet-only banks have ceased offering loans to individuals with high credit scores to focus on extending medium and low-credit loans. They also plan to increase the volume of such loans during the second half of this year.
However, market watchers express concern that the push to increase such loans has its own pitfalls. It could lead to a rise in delinquency rates. In the first quarter of this year, the average delinquency rate among the three internet-only banks was 0.91 percent, three times higher than that of the major five commercial banks.
The industry argues that setting loan objectives for medium and low-credit borrowers as percentages, rather than as absolute amounts, poses a dilemma between meeting these goals while maintaining financial stability.
“The market conditions have changed since the time these targets were set in 2021. There are constraints on expanding credit loan operations, especially in a high-interest rate environment,” an official at an internet-only bank said. “To expand loans to medium and low-credit borrowers while keeping the bank financially sound, internet-only banks should also increase high-credit loans.”
