Commercial Banks vs. Internet Banks, Battle for Mid-Interest Rate Loans Anticipated

Next Year’s Total Volume Regulation Exemption Under Review
Commercial Banks Shift to Focused Offensive
Credit Rating Advancement Is Key

[Asia Economy Reporter Kiho Sung] As financial authorities have expressed their intention to exclude loans to middle- and low-credit borrowers from next year's total household loan volume management, the mood is mixed between commercial banks and internet-only banks. While it is welcomed that there will be more leeway in loan operations, competition is inevitably expected to become fiercer. In particular, commercial banks are also planning to target middle- and low-credit borrowers next year, causing internet-only banks to be on high alert.

According to the financial sector on the 13th, financial authorities are considering a plan to exclude loans to middle- and low-credit borrowers and products for low-income households from next year's total household loan volume management and provide incentives. Earlier, on the 3rd, Financial Services Commission Chairman Seungbeom Ko announced this and said, "We will finalize specific measures within this month after consultations with the financial sector."

Although specific measures have not yet been finalized, the industry's response is positive. Internet-only banks, which have been struggling to expand mid-interest rate loans, are especially welcoming this. Excluding loans to middle- and low-credit borrowers from total volume management has been a consistent agenda requested by internet-only banks. These banks have concentrated their entire organizational capabilities this year to expand loans to middle- and low-credit borrowers as promised to financial authorities. Because of this, it was difficult to actively conduct loan operations under total household loan volume management. In particular, since the third quarter of this year, they have virtually stopped high-credit loans to meet the proportion of middle- and low-credit loans.

If mid-interest rate loans are excluded from the total volume management limit, it will provide relief for internet-only banks. A representative from an internet-only bank said, "Although the final decision has not yet been made, we welcome the direction of the financial authorities," and added, "If this direction is decided, we expect to expand loans to middle- and low-credit borrowers further next year."

However, the fact that they will have to enter full-scale competition with commercial and regional banks for loans to middle- and low-credit borrowers is a burden. The industry expects that if loans to middle- and low-credit borrowers are excluded from the total volume management limit for fairness, other banks will also receive the same benefits.

In particular, commercial banks are preparing to increase loans to middle- and low-credit borrowers in earnest. According to the office of Democratic Party lawmaker Gwansuk Yoon, the five major commercial banks (KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup Bank) have so far reduced the proportion of loans to middle- and low-credit borrowers and increased the proportion of high-credit loans. Because of this, internet-only banks have been able to increase loans to middle- and low-credit borrowers without significant competition.

However, following the financial authorities' policy, commercial banks have recognized loans to middle- and low-credit borrowers as a new growth opportunity, reversing the atmosphere. Recently, KB Kookmin Bank President-designate Jaegun Lee said, "For low-income customers with credit ratings below grade 7, the limit is open, so it should be explored as a growth opportunity," and added, "Refining the Credit Scoring System (CSS) to identify customer groups is a key factor in differentiating bank performance." It is also known that other commercial banks have started upgrading their CSS.

Therefore, the industry expects fierce competition over loans to middle- and low-credit borrowers to be inevitable. An industry insider said, "There is a limit to increasing high-credit loans, and competition for loans to middle- and low-credit borrowers, which are excluded from total volume management, is a foregone conclusion," adding, "To generate profits from loans to middle- and low-credit borrowers, refining the CSS is crucial, so commercial banks, which hold large amounts of data on existing borrowers, are expected to launch strong offensives."