[Financial Stability Status] Internet-Only Banks' Mid-to-Low Credit Borrowers' Credit Loan Delinquency Rate Expected to Rise 2.2% in 2023

Bank of Korea Announces 'Financial Stability Situation (September 2021)'

[Asia Economy Reporter Jang Sehee] Concerns have been raised that if internet-only banks expand credit loans to medium- and low-credit borrowers in the future, there is a risk of rising delinquency rates.

According to the "Financial Stability Report as of September 2021" released by the Bank of Korea on the 24th, if loans to medium- and low-credit borrowers increase, the delinquency rate on credit loans by internet-only banks is estimated to rise to 2.2% in 2023. Internet-only banks plan to expand the proportion of credit loans to medium- and low-credit borrowers to over 30% by 2023.

Looking at changes in delinquency rates over time for household credit loans, the delinquency rate for medium- and low-credit loans is 3.8% one year after the loan is issued. After two years, it tends to rise sharply to 6.7%.

Additionally, the Bank of Korea analyzed that increased loan competition among financial institutions during the expansion of credit loans by internet-only banks could become a burden for household debt management in the future.

If competition among financial institutions to secure customers intensifies, competition within the credit loan market is estimated to increase by about 12% over the next three years.

The problem is that many medium- and low-credit borrowers receive credit loans exceeding their income, leading to an expanding leverage trend. Leverage increased from 11.2% in the third quarter of 2020 to 19.3% in the first quarter of this year.

The Bank of Korea emphasized, "There could be negative effects on the soundness of internet-only banks and household debt management," adding, "It is necessary to strengthen strict credit risk management for loans by internet-only banks and efforts to expand capital corresponding to the expansion of credit loans."

However, it added, "The expansion of credit loans to medium- and low-credit borrowers by internet-only banks is expected to have a positive effect by improving financial accessibility for vulnerable groups through the activation of mid-interest rate loans."