Korean internet banks face alarming credit delinquency rates

2023.09.19 14:54:01 | 2023.09.19 15:31:02

[Courtesy of each company]이미지 확대

[Courtesy of each company]

The credit delinquency rates for South Korea’s top three online banks - KakaoBank, K bank, and Toss Bank - have surged to alarming levels, raising concerns about their financial health. K bank, in particular, has witnessed a credit delinquency rate exceeding 4 percent for the first time since its inception. As of the end of last month, the three banks reported a credit delinquency rate of 1.2 percent.

Their combined credit delinquency rate had remained at a low level of 0.3 percent in 2021. However, it began to steadily rise last year, reaching 0.42 percent by June, 0.77 percent by December, 1.04 percent by June this year, and finally hitting 1.2 percent by the end of August.

This represents the highest level of delinquency rates since the inception of internet banks in Korea and a more than twofold increase within a year.

The internet banks have taken steps to manage their financial health, including doubling their provisions for loan losses compared to the previous year. However, concerns persist, as high interest rates are expected to continue, potentially leading to further defaults among vulnerable borrowers.

When compared to the delinquency rate for household loans excluding mortgage loans, which stood at 0.62 percent as of the end of June, the credit delinquency rates of the internet banks are relatively high. However, it is essential to consider that internet banks have a tendency to deal with loans to individuals with medium to low credit scores, which naturally results in slightly higher delinquency rates compared to traditional banks.

Toss Bank recorded the highest delinquency rate at 1.58 percent, followed by K bank at 1.57 percent, and KakaoBank at 0.77 percent. The trend of rising delinquency rates for medium to low credit score loans is more pronounced among these three internet banks.

As of the end of last month, the delinquency rate for medium to low credit score loans at the three internet banks was 2.79 percent, which is nearly three times higher compared to a year ago when it was at 0.84 percent. Among these banks, K bank reported the highest rate at 4.13 percent, followed by Toss Bank at 3.40 percent, and KakaoBank at 1.68 percent.

By Chun Jong-heon and Minu Kim

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