Banks Expand Debt Refinancing Options, Pressuring Savings Banks

Savings banks are feeling the pressure as major banks launch debt refinancing products targeting borrowers from the second financial sector. While the government's inclusive finance policy aims to reduce interest burdens for low to mid-credit borrowers, the migration of relatively creditworthy borrowers to banks could weaken the profitability of savings banks. Industry experts warn that if this trend continues, it could lead to a contraction in mid-interest loans and increased financial stability concerns.

According to the financial sector on June 3, major commercial banks have recently expanded the supply of mid-interest and refinancing loans for borrowers from savings banks and other second financial institutions. Hana Bank plans to launch its 'Hana OneQ Mid-Interest Loan' this month, targeting borrowers with credit scores in the bottom 50%. Shinhan Bank is considering broadening its refinancing loan offerings, which were previously limited to its affiliated savings bank customers, to include borrowers from other savings banks. KB Kookmin Bank is also operating related products.

Savings banks are in a complex situation. They have traditionally catered to low to mid-credit borrowers and those with multiple debts, who have been key revenue sources due to their stable income and repayment histories. If these borrowers shift to banks, the proportion of higher-risk borrowers at savings banks will inevitably increase.

In fact, users of bank refinancing loans tend to have relatively higher credit scores among mid-credit borrowers. An analysis by the loan comparison platform Bank Salad revealed that a significant portion of users of the 'KB Kookmin Hope Loan' fall within the credit score range of 650 to 850. The KB Kookmin Hope Loan is a refinancing product aimed at wage earners holding credit loans from the second financial sector.

The savings bank industry believes that if the trend of losing creditworthy borrowers continues, they will have to adopt more conservative loan screening practices to manage delinquency rates. In the first quarter of this year, the volume of private mid-interest loans was 1.72 trillion won, a 37.3% decrease compared to the same period last year, while the delinquency rate rose to 6.7%, an increase of 0.7 percentage points from the end of the previous year.

A savings bank official stated, "While the industry is not yet in a precarious position, if this trend continues, we could see an increase in the exodus of mid-credit borrowers. If the burden of maintaining financial stability grows, our capacity to supply mid-interest loans may also diminish."