Half of Land Collateral Loans Are from Industrial Bank of Korea... Smart Collateral Management Is the Key Solution

Efforts to Manage Movable Collateral Based on Internet of Things (IoT)
Effective in Reducing Poor Management Rates of Smart Movable Collateral

[Asia Economy Reporters Sunmi Park and Seungseop Song] As financial authorities are promoting the activation of movable property collateral loans to expand lending capacity for small and medium-sized enterprises (SMEs), banks, led by IBK Industrial Bank of Korea, are focusing on smart management of movable collateral based on the Internet of Things (IoT).

According to the Financial Supervisory Service’s Financial Statistics Information System on the 3rd, as of the end of last year, the outstanding balance of movable property collateral loans at the five major banks?KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup?and IBK Industrial Bank of Korea totaled 1.2284 trillion KRW. Among these, IBK Industrial Bank of Korea accounted for more than half, with 742.664 billion KRW, while the rest was distributed among KB Kookmin (173.164 billion KRW), Hana (173.637 billion KRW), Shinhan (100.797 billion KRW), Nonghyup (23.18 billion KRW), and Woori (14.983 billion KRW).

Movable property collateral loans refer to products that allow borrowing money using movable assets such as production facilities, raw materials, finished products, agricultural, livestock, and fishery products, accounts receivable, and intellectual property rights as collateral, in contrast to real estate collateral loans. Movable property is the only financing method for startups and SMEs with insufficient credit and collateral. Demand for such loans is high among SMEs that lack real estate or have low credit, but from the banks’ perspective, it is difficult to assess collateral value, and due to the inconvenience and uncertainty of fund recovery, these are classified as relatively high-risk collateral.

Financial authorities have set a plan to expand the scale of non-real estate loans, including movable property collateral loans, to the 6 trillion KRW level by 2022, moving away from the real estate-centered collateral loan practice, and are promoting the activation of movable property collateral loan support. Accordingly, as of the end of April, IBK Industrial Bank of Korea’s outstanding balance of movable property collateral loans increased to 957 billion KRW, signaling an overall expansion in the banking sector.

As financial authorities urge the activation of movable property collateral loan support, it has become important for banks to efficiently manage movable collateral to reduce default rates. This is why banks are actively pursuing IoT-based movable collateral management.

Banks Actively Manage Movable Collateral Using IoT

IBK Industrial Bank of Korea, a leader in movable property collateral loans, announced a bid for a service contract for IoT movable collateral management earlier this month, aiming to strengthen collateral stability through management using new technologies such as IoT.

Since 2018, IBK Industrial Bank of Korea has been steadily managing movable collateral using IoT, and this year it is proceeding with a contract worth about 3.5 billion KRW. The service proposal request includes effective utilization of accumulated movable collateral management data, provision and maintenance of IoT devices, 24/7 real-time monitoring of movable collateral, and emergency dispatch services. The intention is to enhance movable collateral management by expanding the application of new technologies and thereby reduce default rates.

Shinhan Bank introduced IoT terminals for movable collateral management to provide convenient and efficient financial services. The management status can be viewed on a digital platform built in-house. The terminal is about 15 cm in size, capable of detecting minute vibrations and tracking location in real time via GPS. This eliminates the need for site visits every few months to check for collateral abnormalities. If the device does not operate for more than a week or moves more than 500 meters, the bank is remotely alerted via a mobile phone alarm.

KB Kookmin Bank also established an IT-applied movable collateral post-management platform last year. Separate QR codes are attached to inventory assets to enable regular quantity management. If collateral is moved or damaged without authorization, a security company is dispatched. According to a KB Kookmin Bank official, the default rate on movable collateral loans, which was 4.2% before implementation, dropped sharply to 0.2% earlier this year.

A financial authority official stated, "This year, we plan to refine the technology finance system in detail to continuously support SMEs with technological capabilities," adding, "In the second half of the year, we will gather opinions from the banking sector and strengthen innovative finance elements such as movable collateral and intellectual property (IP) in the evaluation of technology finance performance."