'Attracting Customers with In-Banking and Joint Loans with Regional Banks'... Authorities' 'Breaking Bank Oligopoly' Strategy

In-Bank 'Customer Attraction' - Regional Banks 'Funding' Combination
Proposal to Ease Loan Ratio Targets for Medium and Low Credit Borrowers

The financial authorities are promoting a ‘joint loan model’ with regional banks to strengthen the competitiveness of internet-only banks (InBank). The idea is to combine the strengths of InBanks and regional banks to alleviate the oligopoly centered on large banks.

Kim So-young, Vice Chairman of the Financial Services Commission, at the ’4th Task Force (TF) on Banking Sector Management, Sales Practices, and System Improvement’ working group meeting held on the 22nd at the Government Seoul Office in Jongno-gu, Seoul, urged, “Please actively review the legal and institutional constraints and the feasibility of launching the joint loan model proposed by InBanks.”

At the meeting held on the theme of strengthening InBank competitiveness, the Internet-only Bank Council (Council), composed of KakaoBank, K Bank, and Toss Bank, presented proposals to enhance InBank competitiveness. The joint loan model proposed by the Council selects loan recipients based on InBanks’ excellent customer acquisition capabilities and credit evaluation models, with funds shared between InBanks and regional banks.

For example, when a customer applies for a loan through the InBank application, both the InBank and the regional bank conduct separate screenings, and the two institutions execute the loan at a pre-agreed ratio for customers approved by both parties. Customer-facing operations are entrusted to the InBank by the regional bank, and post-management is outsourced to the same post-management company for consistency.

The Council explained the effects of this joint loan model, stating, “InBanks can continuously supply loans within an appropriate capital ratio to expand their growth base, while regional banks can diversify their sales channels and secure high-quality loan portfolios to strengthen competitiveness. This can alleviate the oligopoly structure centered on large commercial banks and drive mutual growth and coexistence between InBanks and regional banks.”

Vice Chairman Kim said in this regard, “The collaboration between regional banks that secure loan funds and InBanks that have broad consumer contact points is expected to promote competition,” urging officials from the Financial Services Commission and the Financial Supervisory Service to actively review the model.

Meanwhile, InBanks also requested easing the target ratio of loans to middle- and low-credit borrowers as part of competitiveness enhancement measures. This is because, amid the ongoing high-interest rate environment, delinquency rates have increased mainly among these middle- and low-credit borrowers, limiting InBanks’ role as a ‘catfish’ in the financial sector.

However, Vice Chairman Kim drew a line on this, saying, “The original purpose of InBanks was financial innovation and promoting sound competition within the banking sector, but looking at the growth process of InBanks so far, there has been a tendency to focus on rapid external growth. What the public expects is steady capital expansion to improve soundness, advancement and innovation of alternative credit evaluation, activation of loans to middle- and low-credit borrowers, and thorough management of non-performing loans to build solid foundations.”