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Internet-only banks' financial soundness deteriorates
By Anna J. Park
With interest rates remaining high, the financial soundness of three internet-only banks ― K bank, KakaoBank and Toss Bank ― has begun to deteriorate, as their delinquency rates continue to soar to highs. The fact that the banks provide a larger proportion of their credit loans to medium- and low-credit borrowers is even more concerning.
According to the latest data submitted by the banks to Rep. Yang Kyung-sook from the main opposition Democratic Party of Korea, the average delinquency rate for credit loans at the three banks stood at 1.2 percent. Delinquency rate refers to the percentage of loans within a bank's entire loan portfolio of which payments are delinquent.
The three mobile-based lenders' credit loan delinquency rates have been rising sharply since June of last year. Prior to then, the figure was maintained at roughly 0.3 percent during 2021. But it rose to 0.42 percent in late June 2022, and spiked up to 1.04 percent in June this year. The figure rose further to 1.2 percent at the end of August.
The figure is an all-time high for the three internet-only banks, and it has more than doubled in just a year. Considering traditional banks' average delinquency rate on household loans, excluding more stable mortgage loans, was 0.62 percent, as of the end of June, the three mobile banks' credit loan delinquency rates remain at a high level.
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| Logos of three internet-only banks in Korea |
Toss Bank explained that the current level of delinquency rate is within its forecast model, adding it has prepared ample reserves as an allowance for bad debts.
"As one of the major goals of launching internet-only banks was providing more loans to the country's medium- and low-credit borrowers, Toss Bank has been loyal to the value of inclusion, and the current level is within the forecasts of our own model. Yet, we will strive to reduce the figure," an official from Toss Bank told The Korea Times, Monday.
"Also, Toss Bank will mark its two-year anniversary in October, meaning that the bank's operation period is way shorter than its peers, K bank and KakaoBank, which have been in the industry for seven years now."
Toss Bank also highlighted that it provides the largest proportion of loans to medium- and low-credit borrowers among all local banks in Korea. As of June, medium- and low-credit borrowers account for 38.5 percent of loans provided by Toss Bank, compared to 24 percent at K bank and 27 percent at KakaoBank.
While Toss Bank provides the largest percentage of the loans, K bank's delinquency rate in this specific group of borrowers was the highest at 4.13 percent. An official at K bank explained that the rise of the delinquency rate is partially attributed to last year's surge in credit loan balances, and the bank is closely controlling the figure.
"The rise in the figure has somewhat ascribed to last year's unusual market conditions. The bank is tightly monitoring and managing the delinquency rates by sophisticating its system," an official from K bank said.
Toss Bank and KakaoBank followed, posting delinquency rates of 3.4 percent and 1.68 percent, respectively, among medium- and low-credit borrowers. Putting them together, the three banks' average delinquency rate in their loans to medium- and low-credit borrowers stood at 2.46 percent at the end of June, 2.9 times higher than a year earlier when it was 0.84 percent.
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