KakaoBank was the only one among the three internet banks whose nonperforming loans increased in the first half of this year. Nonperforming loans are called "empty-shell loans" because lenders cannot collect principal or interest from financial consumers. Typically, payments stop for at least three months due to arrears, debt restructuring, or court receivership, resulting in no revenue. In the financial sector, they are regarded as more toxic than substandard or below loans (substandard, doubtful, presumed loss).
According to each company's semiannual report on the 2nd, KakaoBank's total nonperforming loans in the first half stood at 237.3 billion won, a sharp rise of 19.5% from a year earlier. During the same period, Toss Bank's nonperforming loans fell 28.8% to 97.2 billion won, and Kbank's dropped 47% to 107.5 billion won.
KakaoBank has the largest volume of loans to mid- to low-credit borrowers among the three internet banks, which appears to have driven the rapid increase in nonperforming loans. In the first half of this year, KakaoBank supplied 14 trillion won in loans to mid- to low-credit borrowers, far outpacing Kbank (7.6992 trillion won) and Toss Bank (9.03 trillion won).
Starting this year, financial authorities mandated internet banks to supply at least 30% of new loans to mid- to low-credit borrowers (bottom 50% by credit score). As a result, KakaoBank, which has the largest overall loan book among internet banks, has handled relatively more loans to mid- to low-credit borrowers.
KakaoBank is also increasing private mid-rate loans. Private mid-rate loans, similar to loans for mid- to low-credit borrowers, are offered to individuals in the bottom 50% by credit score, but cannot exceed a maximum rate of 8.16% (for internet banks). As of the second quarter of this year, KakaoBank's private mid-rate loans rose 33.1% year over year to 434.5 billion won. That is the second largest among 19 financial companies that are members of the Korea Federation of Banks, after KB Kookmin Bank (560.6 billion won).
The recent rapid increase in nonperforming loans is expected to weigh on KakaoBank's asset quality. KakaoBank's arrears ratio rose from 0.49% in 2022 to 0.52% last year. A KakaoBank official said, "We have complied with the regulation on the share of mid- to low-credit loans and have steadily expanded supply to meet it, which has also increased nonperforming loans."