Internet Banks Gain Access to Corporate Loans, Shifting Banking Landscape

On July 4, the Financial Services Commission announced that it would expand the scope of in-person operations for internet banks, allowing them to enter the corporate loan market, which has traditionally been dominated by commercial banks. This move is expected to reshape the lending landscape for small and medium-sized enterprises (SMEs).

During a regular meeting on July 1, the Financial Services Commission adjusted the regulations governing in-person operations for internet banks. As a result, internet banks will now be able to conduct essential in-person activities for corporate loan assessments, including meetings with company representatives, on-site inspections, and verification of original documents. This change is seen as a response to the government's push for more productive finance.

Internet banks are particularly focused on the relaxation of in-person assessments for corporate loans. Previously, they hesitated to enter the SME lending market due to the lack of legal grounds for verifying collateral and conducting on-site inspections. However, this regulatory update provides them with an opportunity to pursue productive finance more effectively.

In the first quarter of this year, household loans accounted for 92.9% of Kakao Bank's total loans, 91.1% of Toss Bank's, and 85.3% of K Bank's. With recent regulatory tightening on household and credit loans, internet banks have faced limitations on interest income.

As internet banks begin to actively participate in the SME lending market, there are speculations about potential shifts in market dynamics among the three banks. Excluding household loans, K Bank currently leads with approximately 14.7% of corporate and non-household loans, followed by Toss Bank at about 8.9% and Kakao Bank at around 7.1%. If focusing solely on corporate loans, the rankings among the three could be reversed.

K Bank has recently initiated a project to develop a credit system for small businesses, accelerating its growth. Toss Bank, which was the first internet bank to offer loans to individual business owners, is also expanding its workforce and assessment infrastructure. It aims to leverage partnerships with various financial institutions that have in-person service capabilities, such as Gwangju Bank, to gain a competitive edge. Kakao Bank is expected to launch a 'joint loan for SMEs' product with Busan Bank as early as this year, marking its formal entry into the market.

To enhance inclusive finance through in-person consultations, each bank is considering utilizing its existing customer service centers. A financial industry source stated, "We are deliberating whether to expand these centers or maintain the current number."

The Financial Services Commission's new policy has created a sense of urgency among commercial banks. With competition for corporate loans already fierce, the entry of internet banks could lead to widespread competition on interest rates and lending limits. However, there are also concerns that this move strays from the original intent behind establishing internet banks.

A financial industry source commented, "Corporate lending requires building relationships through direct engagement, which may limit the competitiveness of internet banks that can only conduct inspections for loan applications received. However, if internet banks collaborate with regional banks and offer attractive interest rates for non-face-to-face loan applications, they could pose a significant threat."