In the first half of this year, the average credit score of new borrowers from the three internet banks declined. This is interpreted as a result of the financial authorities announcing measures requiring that 30% of new loan amounts be allocated for low to mid-credit borrowers each quarter. With the three banks experiencing an increasing trend in arrears, it is expected that managing soundness will become even more challenging due to the increase in loans to low to mid-credit borrowers.
According to the Banking Association on the 24th, the average credit score of new financial consumers for general credit loans from the three internet banks in the first half of the year (January to June) was 889.8 points, which is a drop of 16 points compared to the same period last year (905.8 points). Kbank experienced the largest drop of 28.2 points, followed by Toss Bank at 21 points. KakaoBank had a slight increase of 1.3 points, showing no significant difference.
At the end of the first quarter, KakaoBank's average balance ratio of low to mid-credit loans reached 32.8%, marking the highest rate ever. Kbank appeared at 35%, the highest among internet banks. Toss Bank exceeded its target for five consecutive quarters, achieving 34.3% since last year.
In February, the Financial Services Commission announced measures to strengthen the loan targets for low to mid-credit borrowers at internet banks. The key point is that the loan ratio for low to mid-credit borrowers (those in the bottom 50% of credit scores) must be at least 30% of the total new loan handling amount. Failure to comply will result in disadvantages in various procedures, such as new business approvals, making this a regulation that internet banks must strictly adhere to.
Last year, it was sufficient to match the proportion of low to mid-credit borrowers at 30% based on the total loan amounts at the end of each quarter, but starting this year, it is necessary to meet both the 30% ratio of new handling amounts and the 30% of total handling amounts each quarter. This is a measure to prevent the concentration of loan supply to low to mid-credit borrowers at specific times.
In fact, since last year, there has been a phenomenon where the interest rates for 'mid-credit loans' targeted at low to mid-credit borrowers have been lower than those for general credit loans targeted at high-credit borrowers. It appears this was due to the intensive expansion of loans to low to mid-credit borrowers at the end of quarters when inspections by the authorities were conducted.
This year, because it is necessary to meet the target for the proportion of new borrowers every quarter, there must be a continuous supply of loans to low to mid-credit borrowers. Consequently, the demand for loans to low to mid-credit borrowers is likely to steadily increase compared to before. With the obligation to disclose indicators such as arrears each quarter, the burden of managing soundness has also increased. If loans to low to mid-credit borrowers continue to rise, the likelihood of increased arrears is high, and in turn, the reserve for bad debts may grow, ultimately degrading profitability.
Recently, the trend of increasing arrears among the three internet banks is on the rise. Toss Bank's arrears rate was 0.72% in 2022, but it rose to 1.19% last year. During the same period, KakaoBank increased from 0.49% to 0.52%, while Kbank rose from 0.85% to 0.90%.
A source in the financial industry said, "As the standards for loans to low to mid-credit borrowers are strengthened, internet banks are responding by expanding dedicated loan products."