"Internet Banks Must Reduce Reliance on Household Loans to Survive"

Government Tightens Household Loan Controls, Increasing Burden on Internet Banks Highly Dependent on Mortgage Lending
Hana Institute of Finance: "Internet-Only Banks Must Discover New Revenue Sources"

Internet-only banks, which have so far focused on household loans to generate profits, are being urged to fundamentally improve their business structure in order to survive in the future. This includes expanding business loans and pursuing new business ventures. As the Lee Jaemyung administration criticizes banks for making easy profits from interest income, there is an analysis that internet-only banks need to reduce their reliance on household loans.

Government Tightens Control on Household Loans, Burden Increases for Internet Banks Highly Dependent on Mortgage Loans

According to the report "Internet-Only Banks Accelerating Portfolio Transition" by Hana Bank's Hana Institute of Finance released on August 20, the government introduced measures to strengthen household loan management in June, including limiting mortgage loans for homes in the Seoul metropolitan area to 600 million won. Afterwards, President Lee Jaemyung pointed out to the financial sector, "Banks should not cling to easy interest gains from mortgage loans but should work to expand investments."

As the government halved the annual household loan growth target for the second half of the year, housing transactions in the metropolitan area decreased and banks' household loan operations were disrupted. The diagnosis is that internet-only banks, whose portfolios are heavily centered on household loans, are most affected by these measures.

Internet-only banks have an extremely high proportion of household loans, accounting for 93.4% of their total loans. As of the first quarter of this year, household loans accounted for 96% of KakaoBank's total loans, 93% for K Bank, and 90% for Toss Bank. This is significantly higher than the commercial bank average of 47%. The proportion of interest income in operating revenue is also high: 85% for K Bank, 81% for KakaoBank, and 81% for Toss Bank, compared to the commercial bank average of 38%.

Given that the government is now regulating interest-driven business focused on real estate collateral loans, there are calls for internet-only banks to diversify their revenue sources in order to survive. Following these regulations, internet-only banks have started to seek new sources of income, such as raising the limit on individual business loans and expanding products and services. KakaoBank plans to increase the share of individual business loans to 18% by 2030, and is expanding credit loan limits, launching collateralized loans, and broadening other support services for individual business owners. K Bank and Toss Bank are also strengthening their services for individual business owners by expanding real estate collateral loans, introducing guaranteed loans with guarantee foundations, and launching policy funds for small business owners.

Beyond Expanding Business Loans, Revenue Diversification Is Essential for Survival

However, the institute pointed out that internet-only banks face potential risks such as increased burden of risk management and limitations on expanding their market share in loan assets, making fundamental structural improvement essential. Individual business loans require more stringent credit assessment than household loans, have a higher potential for losses compared to mortgage loans, and their delinquency rate has more than doubled over the past five years, making risk management critical. In addition, financial authorities are considering raising the risk weight for mortgage loans to promote more productive finance, which could further increase the burden on internet-only banks.

Deterioration of risk indicators and an increase in risk-weighted assets could lead to constraints on capital management in the future, requiring structural improvements for asset and profit growth. To achieve this, it is necessary not only to expand business loans but also to grow assets by expanding household loans within current regulatory limits and to increase profits by discovering new revenue sources in response to changes in the market environment.

Shim Yunbo, a research fellow at the Hana Institute of Finance, stated, "Internet-only banks need to maintain growth in the household loan sector not only through individual business loans but also by expanding mortgage loans in non-regulated areas and joint credit loans through partnerships with regional banks." He added, "For non-interest income, they should consider not only expanding platform and fee income through loan comparison and investment product brokerage, but also pursuing new businesses such as stablecoins."