As the government's household loan regulations have pushed commercial bank lending to focus on ultra-high-credit borrowers, mid- to low-credit borrowers are being forced into secondary financial institutions (mutual finance institutions, savings banks, insurers, card companies, etc.) with higher interest rates.
According to the Korea Federation of Banks on the 31st, the average credit score for newly issued household loans last month at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) was tallied at 940–950 points. The average score for newly issued household loans at the five banks has continued to rise from 911–932 points in July 2023.
Credit scores are out of 1,000 points; above 900 is classified as high credit, and above 950 as ultra-high credit. An average score in the 940s for new loans means most borrowers are high or ultra-high credit. As interest in credit scores has grown, more people are managing them, and with the government's credit amnesty that erased records of arrears, scores are becoming uniformly higher.
As credit scores rise across the board, there are people with scores in the 900s who still cannot get loans from commercial banks and turn to secondary financial institutions. According to disclosures from the Korea Federation of Savings Banks, Pepper Savings Bank's Pepper Smart Loan supplied 49.26% to borrowers with credit scores over 900, and SBI Savings Bank's SBI First Loan supplied 26.98% to those over 900.
The interest rates on these products are around 10% annually, and as borrowers with scores in the 900s use them, mid- to low-credit borrowers with scores in the 800s or below have no choice but to seek loan products with even higher rates.
The government, which has tightened household loans since last year, plans to continue the regulations this year. As the government strictly manages the total loan volume, banks, where rates are relatively low, are prioritizing lending to high-credit borrowers to minimize the risk of arrears and insolvency.
A commercial bank official said, "With the total loan volume cap, screenings have become stricter, which tends to raise the average borrower credit score."