Measures to Expand Borrower Scope through Advancement of Credit Evaluation Models in the Banking Sector

Financial Authorities Consider Excluding Mid- and Low-Credit Borrowers from Household Loan Total Volume Management

[Asia Economy Reporter Park Sun-mi] As financial authorities consider excluding loans to middle- and low-credit borrowers from the total household loan volume control in 2022, efforts to expand the borrower base through the advancement of credit evaluation models in the banking sector are gaining momentum.

According to the financial sector on the 6th, domestic banks have submitted plans to the Financial Supervisory Service to keep next year's household loan growth rate at around 4.5~5% and are preparing countermeasures to compensate for profit losses caused by slower loan growth. Increasing loans to individual business owners and corporate loans, or expanding the borrower base to middle- and low-credit borrowers, who have not received much attention so far, is being considered.

This movement aligns with the financial authorities' stance that the handling of loans to middle- and low-credit borrowers or policy-based low-income financial products should not shrink while curbing the increase in household loans, and the banking sector is considering incentives to expand loans to these borrowers. Financial Services Commission Chairman Ko Seung-beom said in the announcement of next year's financial policy direction, "We are considering excluding loans to middle- and low-credit borrowers from the total household loan limit," adding, "We plan to finalize this within this month."

If loans to middle- and low-credit borrowers are excluded from the total household loan limit, banks will be able to offset profit losses caused by slower loan growth with loans to these borrowers.

KB Kookmin Bank plans to expand the household loan scope, which has been centered on prime customers, to middle- and low-credit borrowers with credit ratings of 7 or below through the advancement of its credit evaluation model (CSS). Even for middle- and low-credit borrowers with ratings of 7 to 8, if data confirming their ability to repay loans is secured and loan execution and repayment occur, the bank can secure interest income and support the financial authorities' low-income financial policies, thus achieving "two birds with one stone."

Lee Jae-geun, the vice president nominated as the next president of Kookmin Bank, said, "It is a common problem in the banking sector that interest income may decrease due to slower loan growth during the interest rate hike period, and how much this can be covered has become important," adding, "We can find new opportunities among customers with ratings of 7 to 8."

Woori Bank has been expanding loans to middle- and low-credit borrowers through the advancement of its credit evaluation model and has been applying this expansion to individual business owners since the second half of this year. Alternative information such as telecommunications data, distribution data, and merchant information, which can supplement existing financial information, has been utilized for precise evaluation of customers with insufficient financial information. Through this, the strategy is to embrace individual business owners who were previously excluded from the borrower base.

Shinhan Bank's recognition that non-regular freelancers are excluded from bank loans and its launch of a new financial product, the ‘Shinhan Salary Advance Loan,’ which provides emergency living funds for 'gig workers,' can also be interpreted as an effort to expand the borrower base. The Shinhan Salary Advance Loan supports gig workers with funds up to KRW 2 million, providing up to 70% of monthly salary and 60% of weekly or daily wages.

Workers who could not secure funds from banks due to short-term temporary contracts can now prepare living expenses before payday without suffering from high-interest rates. A Shinhan Bank official explained, "Through customer surveys and payroll data analysis, we solved the problem of difficulty in verifying employment and income for short-term and non-regular gig worker customers."