Internet-only banks rapidly extend loans to less creditworthy

Internet-only banks are aggressively lending to borrowers with weak credit.

Their efforts have resulted in a rapid increase in the size of their loan books at a time when other banks are slowing loan growth.

Total loans outstanding at the three internet-only banks — Kakao Bank, K Bank, Toss Bank — grew 7.9 percent to 36.14 trillion won ($29.75 billion) in the year through March 31.

During the same period, loans outstanding at the five largest commercial banks — KB Kookmin, Shinhan, Woori, Hana and NongHyup — were down 0.8 percent to 703.19 trillion won.

Stricter loan regulations to control the investment craze, fanned by low borrowing rates, reduced demand for loans. Starting this year, credit card debt is included in calculating an individual's debt service ratio (DSR), which is loan payments divided by a borrower's income.

People with moderate to weak credit ratings turned to internet-only banks after being rejected by commercial banks.

"I feel relieved I was able to take out a loan even though I have a relatively weak credit rating," said a borrower who recently received a 5-million-won loan at 14-percent from an internet-only bank.

The borrower, who had a 700 credit score, was rejected by multiple commercial banks because of a jeonse loan taken out in October.

A 700 score indicates moderate creditworthiness.

Internet banks have expanded their offerings.

Kakao Bank started writing mortgages in March, and Toss Bank started issuing loans to individual business operators in the same month, extending 116.7 billion won of credit to these customers in a single month.

Internet-only banks are being compelled to lend to the less creditworthy.

The government is requiring that these institutions commit 25 percent of their unsecured loans to people with average or weak credit.

Toss Bank said 31.5 percent of its outstanding unsecured loans were to customers in this group as of the first quarter, up 7.6 percentage points from late last year.

Loan demand is high from these people as they need to borrow to cover living costs, one banker said.

"Risks at internet banks could grow if the overall financial industry weakens after regulators support programs for loan maturity extensions and interest payment deferments later this year," said Park Sun-ji, a spokesperson for Nice Investors Service, a credit rating service provider.

BY YOUN SANG-UN, JIN MIN-JI [jin.minji@joongang.co.kr]