Lee Bok-hyun "Reviewing Easing of Internet Banks' Mid-Interest Loan Obligations"... Competition to Attract High Credit Borrowers Begins

Lee Bok-hyun "There is room for active consideration"
Purpose to induce competition in commercial bank loan interest rates
Opposition argues it contradicts the spirit of 'inclusive finance'

Lee Bok-hyun, Governor of the Financial Supervisory Service

As financial authorities take steps to improve the monopoly system of major commercial banks, measures to ease the mandatory middle- and low-credit loans for internet-only banks are also expected to be considered.

On the 27th, Lee Bok-hyun, Governor of the Financial Supervisory Service, said in a press conference after the ‘On-site Visit for Promoting Competition in the Banking Industry and Enhancing Financial Consumer Benefits’ held at KakaoBank headquarters in Pangyo, Gyeonggi Province, “If improvement measures regarding the proportion of middle-interest rate (middle- and low-credit) loans by internet-only banks are proposed as part of strengthening the competitive environment in the banking industry, there is room for active consideration.”

Governor Lee also expressed the view that lowering the boundaries between existing financial companies should be prioritized in promoting competition in the banking sector. He said, “I believe that new market entry is not the only solution, and the priority is to address the factors or environment that restrict competition among current players in the market.” This can be interpreted as meaning that internet-only banks, securities firms, insurance companies, and card companies can also be positioned as competitors on the stage.

Internet-only banks reduced their handling of high-credit loans last year to meet the target proportion of middle- and low-credit loans. Meanwhile, there have been criticisms that commercial banks have focused on interest-based profits, showing reluctance to lower loan interest rates in an environment without competitors. Consequently, the strategy to involve internet-only banks as competitors to induce interest rate competition in the high-credit loan market is increasingly likely to be discussed.

Regarding whether internet-only banks will be allowed to provide corporate loans, Governor Lee added, “We are keeping all possibilities open and reviewing everything without excluding any options.”

Within the industry, there is a generally welcoming atmosphere toward the move to reduce the proportion of middle- and low-credit loans. A representative of an internet-only bank explained, “Since the situation has changed significantly, such as a sharp rise in loan interest rates compared to 2021 when the targets were set, there are questions about whether it is appropriate to apply the same proportion.”

However, there are also many opposing views. Since internet-only banks were originally established with the intention of being more inclusive of vulnerable groups, it is argued that reducing the loan proportion for these groups is not appropriate. In this regard, Governor Lee stated, “We clearly recognize that internet-only banks were licensed with the purpose of supplying credit to thin-file borrowers.”