KakaoBank Lowers Loan Barriers for Medium and Low Credit Borrowers with Alternative Credit Scoring Model

KakaoBank has supplied 15% of the mid- to low-credit loans it handled from last year through the first half of this year to mid- to low-credit borrowers additionally selected by enhancing its alternative credit evaluation model.

It is evaluated that the big data-based 'KakaoBank Score' has lowered the loan threshold for mid- to low-credit borrowers who were in the blind spot of interest rates.

'KakaoBank Score' is an alternative credit evaluation model developed in collaboration with the Kakao community, Lotte Members, Kyobo Book Centre, Korea Financial Telecommunications & Clearings Institute, Danal, and others. Since the end of 2022, KakaoBank has applied the 'KakaoBank Score' to loan screening, increasing the discriminative power for mid- to low-credit and thin-file customers who are difficult to evaluate precisely with existing credit evaluation models, thereby expanding the pool of eligible loan customers.

In fact, among the mid- to low-credit loans handled over one year and six months until the end of June after applying the 'KakaoBank Score,' 15% (by number of cases) were supplied to mid- to low-credit borrowers who would have been rejected under the existing model but were selected as prime customers through the alternative information-based evaluation model. The supply amount is approximately KRW 660 billion.

KakaoBank has also been continuously making efforts to lower the loan threshold for small business owners in industries with low financial accessibility by utilizing the alternative credit evaluation model in personal business loans.

Thanks to these efforts, KakaoBank's mid- to low-credit loan balance in the second quarter reached KRW 4.7 trillion, accounting for 32.5%, marking an all-time high.

KakaoBank's supply of mid- to low-credit loans has also played a positive role in reducing interest burdens and improving credit status through repayment of customers' non-bank sector loans.

An analysis of customers who received mid- to low-credit loans from KakaoBank in the first half of this year (excluding refinancing cases through loan switching) showed that about half (43%) held non-bank sector loans and cash services from savings banks, capital companies, card companies, etc., at the time of loan execution. The average loan balance held was KRW 10 million.

One out of three of these customers reduced their non-bank loan balance by an average of KRW 4 million one month after executing KakaoBank's mid- to low-credit loan. The average credit score increased by 36 points from 761 to 797.

Despite the expansion of mid- to low-credit loan balances and proportions, KakaoBank shows sound asset quality through stable risk management. The proportion of mid- to low-credit loans in the second quarter of 2024 rose by 4.8 percentage points year-on-year to 32.5%, but the delinquency rate fell by 0.04 percentage points to 0.48%.

A KakaoBank official said, "As a result of leading data-based alternative credit evaluation models in collaboration with various institutions, we were able to practice inclusive finance targeting mid- to low-credit borrowers and small business owners. We hope that KakaoBank's innovative efforts will spread throughout the financial sector, increasing the usability of alternative data and ultimately benefiting more financial consumers."