Internet Banks Increasing Medium-Low Credit Loans See Highest Delinquency Rate Since Launch

Kabang, Kegang, Tobang 3 Companies 1.2% at End of August
High Interest Rates Increase Target Share of Mid-Low Credit Loans

The delinquency rates of the three internet-only banks (KakaoBank, K Bank, and Toss Bank) that have increased loan supply to middle- and low-credit borrowers are rapidly rising. With high interest rates expected to continue for the time being, managing soundness indicators is expected to be challenging.

According to data submitted on the 17th by the three internet banks (KakaoBank, K Bank, Toss Bank) to Yang Kyung-sook, a member of the National Assembly's Planning and Finance Committee from the Democratic Party of Korea, the combined credit loan delinquency rate of the three internet banks as of the end of August was 1.20%. This figure, which was 0.32% at the end of 2021, quickly rose to 0.42% at the end of June 2022 → 0.77% at the end of December 2022 → 1.04% at the end of June 2023. This is not only the highest figure since the launch of internet banks but also higher than the delinquency rate of household loans excluding mortgage loans (such as credit loans) of domestic banks, which was 0.62% as of the end of June.

By bank, Toss Bank had the highest rate at 1.58%, closely followed by K Bank at 1.57%. KakaoBank was recorded at 0.77%.

The situation is more serious when looking only at loans to middle- and low-credit borrowers. As of the end of last month, the delinquency rate for middle- and low-credit loans of the three banks was 2.79%. It remained in the 0.8% range in the first half of 2022 but more than doubled to 1.71% in December of the same year and rose to 2.46% in June. K Bank had the highest rate at 4.13%, followed by Toss Bank at 3.4%, and KakaoBank at 1.68%. This is also the highest figure since their launch.

The rise in delinquency rates at internet banks is due to an increase in the proportion of loans to middle- and low-credit borrowers during the period of rising interest rates. Internet banks are required to meet annual target ratios for loans to middle- and low-credit borrowers according to the licensing purpose of "supplying loans to middle- and low-credit borrowers." The targets for the end of this year are 30% for KakaoBank, 32% for K Bank, and 44% for Toss Bank, which have been raised compared to last year (25%, 25%, 42%). As of the end of August this year, the proportion of middle- and low-credit credit loans (based on balance) was 28.4% for KakaoBank, 25.4% for K Bank, and 35.6% for Toss Bank, so they need to further increase the proportion in the second half of the year.

Internet banks are reducing the supply of middle- and low-credit loans to manage soundness. The new loan amount for middle- and low-credit loans of the three banks from January to August this year was 4.0748 trillion KRW. This is a decrease compared to the first half of last year (4.2617 trillion KRW) and the second half (4.6274 trillion KRW).

On the other hand, the allowance for loan losses, which is set aside to prepare for losses, has increased. From January to June this year, the allowance for loan losses set aside by the three internet banks was 381 billion KRW, a 97.6% increase compared to one year earlier (192.8 billion KRW). The balance of the allowance for loan losses also more than doubled from 381.2 billion KRW in the first half of last year to 843.2 billion KRW in the first half of this year.