Since last year, internet banks that have shown interest in loans for individual entrepreneurs are expected to focus more on the business loan market this year. The three internet banks have been launching services and loan products favorable to individual entrepreneurs since January, the first month of the new year. However, individual entrepreneur loans are characterized by a high arrears rate, so soundness management is likely to be crucial.
According to the financial industry on the 10th, Kakao Bank launched a product called "Value-Added Tax Box" on the 8th, which helps individual entrepreneurs save value-added tax that arises during business operations. This follows Kakao Bank's earlier offerings like the individual entrepreneur check card, establishment certification issuance, and credit information management services for small businesses. This year, Kakao Bank plans to increase the proportion of individual entrepreneurs in its loan portfolio by launching credit loans over 100 million won and collateral loans for individual entrepreneurs.
K Bank is also preparing services to help self-employed individuals with tax payments. It plans to collaborate with a tax solution provider to integrate artificial intelligence (AI) tax, legal, and labor consultation services for individual entrepreneurs into the K Bank application. Toss Bank, which was the first among the three internet banks to start business loans, has decided to increase its loan balance this year based on its guarantee loan products.
Commercial banks are tightening individual entrepreneur loans and focusing on household loans to manage arrears rates and capital ratios. Individual entrepreneur loans have high arrears rates, making them a difficult product for banks to handle actively. Moreover, during times of high exchange rates, the increase in foreign currency risk-weighted assets exacerbates the deterioration of capital adequacy indicators like Common Equity Tier 1 (CET1) ratio, increasing the burden of soundness management.
In fact, the average interest rate on credit loans for individual entrepreneurs (based on new transactions) from the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) was 5.73% annually as of last month, which is an increase of 0.07 percentage points compared to September (5.66%). Additionally, the loan balance for individual entrepreneurs decreased by 1.3886 trillion won.
In contrast, the loan balance for individual entrepreneurs at the three internet banks stood at 4.2628 trillion won as of the third quarter of last year, an increase of nearly 30% compared to the same period the previous year. Kakao Bank, which achieved a loan balance of 1.666 trillion won for individual entrepreneurs in the third quarter of last year, saw its balance increase more than twofold compared to a year earlier (800 billion won).
Internet banks are viewing individual entrepreneur loans as a potential growth breakthrough, particularly as they are finding it difficult to increase household loans amid authorities' criticisms of their reliance on revenue from housing collateral loans. Unlike banks, there is little impact from high exchange rates, which also reduces the burden of increasing loans for individual entrepreneurs.
The internet banking sector has shown interest in the individual entrepreneur loan market since last year. In August of last year, K Bank was the first in the banking sector to launch a non-face-to-face real estate collateral loan for individual entrepreneurs, and it conducted an event for individual entrepreneurs last month. Kakao Bank supported loans exceeding 100 billion won for individual entrepreneurs each month last year and surpassed 1 million users among individual businesses last month.
The key to expanding individual entrepreneur loans is the arrears rate. Due to the uncertain income characteristics of individual entrepreneurs, their arrears rates tend to be higher compared to other customers. In the third quarter of last year, the average arrears rate for business loans from internet banks was 1.85%, up 1.37 percentage points from 0.48% in the same period the previous year, and more than three times higher than that of commercial banks.
Additionally, if the ongoing economic recession driven by political uncertainties leads to an increase in new defaults, it could further impact the already deteriorated soundness. An official from an internet bank noted, "No matter how much the individual entrepreneur market is seen as a breakthrough for internet banking growth, considering the arrears rate and soundness, it won't be easy to expand without caution," adding, "Enhancing the CSS (personal credit evaluation model) and expanding the portfolio with products like collateral loans while securing financially sound consumers is key."