Woori Bank Embarks on AI Transformation of Credit Process
Nonghyup Bank Upgrades Corporate Credit Evaluation System
Sufficient Lending Capacity, but RWA Regulations
May Lead to Concentration on Large Corporations
"Urgent Need for System Improvement"
Due to the 6·27 lending regulations, the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) are finding it increasingly difficult to expand mortgage lending, and are now turning their focus to expanding corporate loans. This shift is not limited to a temporary increase in supply for the second half of the year; instead, banks are reviewing their entire systems from a mid- to long-term perspective. However, despite sufficient lending capacity, there are concerns that, depending on capital ratios, lending may become concentrated in large corporations. As a result, some believe it may take time for the 'productive finance' policy emphasized by the Lee Jaemyung administration to be fully realized.
According to the financial sector on August 6, Woori Bank is currently pursuing the 'AX (AI Transformation of Credit Process)' project. The bank aims to complete the project by the second half of next year, reviewing improvements across the entire credit process and exploring ways to integrate artificial intelligence (AI) technology. The focus is on upgrading corporate credit systems, including the advancement of automatic screening systems, improvement of calculation processes, introduction of an automatic extension process, implementation of delegation authority and credit limit simulation processes, automation of application information acquisition and registration, and an upgrade of corporate credit report automation using ChatGPT.
Some banks are also working to improve their credit evaluation systems for assessing corporate creditworthiness. Nonghyup Bank announced on July 29 that it would officially launch a project to enhance its data-based corporate credit evaluation system. Building on the performance of its machine learning (ML)-based credit evaluation model introduced last year, the bank explained that it aims to establish a more sophisticated and reliable evaluation system by actively utilizing data stored in its self-developed data mart (which houses over 2,200 credit evaluation data items for use in future model development and data analysis). The bank plans to complete and implement the remodeling of its non-financial benchmark model, development of a new acquisition finance model, and improvements to the credit evaluation process within this year.
Other banks are strengthening the substance of their corporate lending, mainly by supporting small business owners. Kookmin Bank will expand funding support in national strategic industries in the second half of this year. The bank will make special contributions to Korea Technology Finance Corporation and Korea Credit Guarantee Fund to increase loan supply to companies in related industries. It will also expand the supply of policy funds in cooperation with organizations such as the Small Enterprise and Market Service. Shinhan Bank plans to increase the supply of accounts receivable securitization products to activate supply chain finance for small and medium-sized enterprises (SMEs) and small business owners. The bank will also expand loan support using the public delivery application 'Ttaenggyeoyo.' Hana Bank will allocate an additional KRW 2 trillion in special margin support for its corporate interest rate preferential program in the second half of this year. The bank will also increase the special sales limits for SOHO loans and corporate loans.
With relatively low corporate loan supply in the first half of the year, banks are now in an environment where they can actively pursue business in the second half. From January to July last year, the combined balance of corporate loans (including both large corporations and SMEs) at the five major banks increased by 6.2%. In contrast, the increase was only 0.6% during the same period this year. In other words, the scale of corporate lending in the first half of this year was lower than in the same period last year. A commercial bank official explained, "The slowdown was due to the unfavorable economic conditions and the rise in delinquency rates among SMEs, which led to the sale and write-off of non-performing loans as part of soundness management."
However, since corporate loans have higher risk weights compared to household or real estate loans, there is a possibility that lending could become concentrated in large corporations, which are considered relatively less risky than SMEs. As the Lee Jaemyung administration continues to emphasize 'productive finance' to boost corporate investment, there is an urgent need to improve the risk-weighted assets (RWA) system.
A bank official stated, "Because RWA reduces the Common Equity Tier 1 (CET1) ratio, banks must manage this ratio, which in turn narrows the scope for loan operations. As a result, banks with lower CET1 ratios are inevitably forced to focus on relatively safe large corporate loans." As of the first half of this year, Kookmin Bank's CET1 ratio stood at 15.3%. Shinhan Bank's was 15.6%, Hana Bank (holding company basis) 13.39%, Woori Bank 14.9%, and Nonghyup Bank 15.64%.
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