Financial Authorities: "The 4th In-Bank Must Refine Credit Evaluation Models for Small Business Owners"

"Strict Evaluation of Business Plan Feasibility"

Financial authorities stated that the sophisticated development of business models specialized for small business owners and self-employed individuals, as proposed by symposiums preparing for the 4th internet bank, will be an important factor in the evaluation.

On the 13th, Lee Jin-su, Director of the Banking Division at the Financial Services Commission, said at the seminar titled “Evaluation of the Introduction of Internet-Only Banks and Implications” held at the Bankers’ Hall in Jung-gu, Seoul, “We will strictly evaluate the feasibility of the business plans of the consortia aiming to enter as the 4th internet bank,” adding, “The feasibility of credit evaluation models targeting small business owners and the establishment of sophisticated models that can overcome the limitations of non-face-to-face screening will be important factors.”

Director Lee stated, “The existing three internet banks (KakaoBank, K Bank, and Toss Bank) also face difficulties in building credit evaluation models and providing loans to individual business owners,” and added, “Small business owners are classified as new filers (financially marginalized groups) similar to low-to-medium credit borrowers, resulting in very limited lending.”

He continued, “Loans to individual business owners are sensitive to economic conditions, and delinquency rates have recently been rising,” and said, “It will take some time to build credit evaluation models, and during that time, whether sufficient capital can be secured in line with rising delinquency rates and asset growth, and whether soundness management can be maintained, will be important factors in the approval of the 4th internet bank.”

The Financial Supervisory Service also emphasized the importance of fundraising capability and inclusive finance. Jung Woo-hyun, Director of the Banking Supervision Department at the Financial Supervisory Service, said, “All internet banks unexpectedly needed capital increases, and there were significant difficulties in increasing assets due to failure to raise capital in a timely manner,” adding, “A foundation is needed not only for initial capital procurement but also for continuous capital increases during operations.”

Regarding internet banks increasing assets by bringing in mortgage loans originally screened by existing banks through refinancing loan services, he stated, “This is far from innovation and inclusive finance, and the business practice of concentrating on mortgage loans must be reformed.” He also mentioned that the 4th internet bank must have liquidity risk management capabilities to prevent deposit outflows from mobile applications (apps) and address internal control issues.