The government has emphasized the need to expand financial support for mid- to low-credit borrowers, yet the share of mid-credit loans from the five largest banks remains below 3% of the total banking sector. This reluctance from major banks is attributed to rising delinquency rates among mid- to low-credit borrowers, coupled with complex guarantee procedures and low profitability.
According to the Korea Federation of Banks' consumer portal, the new mid-credit loan issuance by the five largest banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) totaled 14.05 billion won in the second quarter of this year, a 17.6% decrease from 17.06 billion won in the first quarter. This amount represents only 2.8% of the total 497.9 billion won issued across the banking sector.
Shinhan Bank accounted for more than half of the total issuance among the five banks, with 7.85 billion won. The remaining four banks contributed only 1.25% to the overall banking sector.
Since taking office, the current government has stressed inclusive finance, urging the banking sector to increase loans for mid- to low-credit borrowers. In April, the eligibility criteria for mid-credit loans were revised to ensure that over 70% of the loans go to borrowers in the bottom 20-50% of credit scores. The government also reduced guarantee insurance premiums and expanded the types of products and institutions involved. These changes took effect in July.
Despite the government's push for increased supply, mid-credit loans have been concentrated in internet banks and regional banks. Toss Bank issued 175.2 billion won in the second quarter, accounting for 35.2% of the total supply. When combined with K Bank's 57.59 billion won, the two internet banks made up 46.7% of the total. Jeonbuk Bank and Gwangju Bank also issued 124.4 billion won and 112.3 billion won, respectively. Together, these four banks accounted for approximately 94% of all mid-credit loans.
Mid-credit loans are medium-interest loans provided by banks to mid-credit borrowers, backed by guarantees from SGI Seoul Guarantee. The process involves both bank assessments and guarantee reviews, making it relatively complex. There are concerns that the customer base overlaps with the banks' own medium-interest loans and other low-income financial products, and the profitability is low compared to the costs incurred during the process.
The significant increase in other low-income financial products by the five major banks further indicates the diminished appeal of mid-credit loans. In the first half of this year, the five banks issued 2.6865 trillion won in New Hope Loans, an increase of 1.1975 trillion won, or 80.4%, compared to the same period last year.
New Hope Loans target borrowers with annual incomes of 40 million won or less, or those earning up to 50 million won with credit scores in the bottom 20%. These loans are provided through the banks' own resources and assessments, making them easier to process than mid-credit loans, which require additional guarantee reviews from SGI Seoul Guarantee.
The rising delinquency rates among mid- to low-credit borrowers also contribute to banks' hesitance in supplying mid-credit loans. According to data submitted by the Financial Supervisory Service to Kim Sang-hoon, a member of the National Assembly's Political Affairs Committee, the delinquency rate for bank credit loans among mid- to low-credit borrowers was recorded at 2.32% at the end of May, approximately 2.6 times higher than the overall delinquency rate of 0.9% for all credit loans. An increase in delinquencies can lead to higher costs related to guarantee management and insurance premiums.
Industry experts argue that simply increasing supply targets is insufficient; major banks need greater incentives to engage in mid-credit loans. They suggest that simplifying guarantee review processes and addressing cost and profitability structures are essential to attract participation from the five largest banks.
A financial industry official stated, “In a situation where delinquency rates are rising rapidly, it is not easy to simply increase loan supply. A comprehensive review of loan structures, assessment criteria, and cost burdens is necessary to encourage banks to participate actively.”
* This article has been translated by AI.
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