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Income, long-term residency — still no loan: Korea's credit wall for foreigners

Published: 01 Jul. 2025, 07:00 Updated: 01 Jul. 2025, 13:14

JIN MIN-JI
[email protected]

Filipino workers participating in a pilot program for foreign housekeepers in Korea enter the country through Incheon International Airport on Aug. 6, 2024. [NEWS1]

For foreigners, getting a loan in Korea is a long shot — even for long-term residents like Rishi Ramachandran, an Indian businessman who runs Seoul-based IBI Research & Consulting.

That financial barrier became the deciding factor in his decision to consider leaving the country after more than two decades in Korea, after multiple failed attempts to take out loans — both for his business and personal overdraft.

He was indirectly told by a banker that his nationality imposes restrictions “in terms of how liberal we can be with loans to foreigners.”

“I never got the loan, and I made multiple attempts over several years just to see if things have changed or if things have improved. But not really.”

Cambodian workers arrive at Incheon International Airport on May 27 under the E-9 visa program, which permits employment in nonprofessional sectors such as manufacturing. [NEWS1]

Banks officially offer loans to foreigners. But in practice, they are reluctant to approve loans to foreign applicants, although the tendency is changing, albeit slowly.

“Most loan applications from foreigners are rejected,” said a banker at one of Korea’s four largest commercial banks. “Even when loans are approved, they’re typically issued under accounts with strict transfer limits and high interest rates.”

Banks have imposed stricter standards on foreigners, applying more sophisticated credit scoring models and offering double-digit interest rates, citing concerns over loan recovery.

"The risk is simply too high," the banker added. "If anything goes wrong, the responsibility could ultimately fall on us.”

The delinquency rate for loans issued to foreigners by JB Financial Group, an operator of the regional Jeonbuk Bank and the largest loan lender to foreigners in Korea, stood at 2.2 percent as of the first quarter, compared to its total delinquency rate of 1.52 percent in the same period.

A Shinhan Bank branch in Gimhae, South Gyeongsang, specialized for foreign customers [SHINHAN BANK]

Despite lingering risks, banks are increasingly attempting to become more receptive to foreign customers in line with the rising population, though foreigners often find their loan terms to be unreasonable.

In the first quarter, the average interest rate Jeonbuk Bank offered to foreigners for their 470 billion won ($346.2 million) in outstanding loans was a whopping 14.4 percent.

The bank in March launched Bravo Korea, a lifestyle-integrated financial service app for foreign residents in Korea.

Through the app, foreigners can borrow up to 50 million won — but at a range of 8.3 percent to 17.9 percent as of mid-June.

“I will never take out a loan at a rate that high,” said a 31-year-old Chinese resident surnamed Si who works at a chip company in Seoul.

“The rate is simply too high. I can get a loan at a rate between 2 to 3 percent in China, just like most workers there. So to me, the rate is a nonsense.”

Commercial banks are also gradually adjusting their strategies to keep pace with the growing presence of foreign residents in Korea.

Shinhan and Hana banks plan to separately roll out personal loan programs targeting foreign residents, though details are yet to be disclosed. Industry insiders expect these initiatives to prompt other commercial banks to roll out similar loan offerings.

The total of outstanding loans issued to foreigners by 20 local banks jumped to 4.87 trillion won in January, up 21 percent from the end of 2022, according to data from the Korea Credit Information Services provided to Democratic Party Rep. Kim Hyun-jung.

The number of foreign borrowers surged 59 percent over the same period.

Banks are also opening specialized branches for foreign customers with multilingual services — a notable shift from their broader strategy of shutting down branches to cut costs.

“The influence of foreign customers is growing, so we’re trying to position them as one of the key customers,” said Lee Hyung-seop, a spokesperson for Shinhan Bank.

The number of foreign residents in Korea has been steadily increasing, reaching around 2.62 million as of July 2024, or 5 percent of the total population, according to Ministry of Justice data. It estimates that the figure could surpass 3 million in 2026.

“Banks are trying to diversify revenue in accordance with the increasing number of foreign residents,” said Won Jai-hwan, a finance professor at Sogang University. “But there definitely needs to be solid measures for dealing with potential defaults and risk management.”

He added, “Compared to domestic nationals, issues like defaults and flight risks remain potential concerns. But if enough data shows there isn’t a big difference between the creditworthiness of domestic nationals and foreigners, then treating them differently would be discriminatory.”

BY JIN MIN-JI [[email protected]]