Rising Interest Rates for High-Credit Borrowers in Internet Banks
Internet-only banks such as Kbank, Toss Bank, and Kakao Bank have continued to offer higher interest rates for high-credit borrowers compared to mid- and low-credit borrowers this year. This trend has become increasingly noticeable, reflecting the evolving dynamics within the financial sector.
According to recent data, Kakao Bank’s interest rate for mid- and low-credit borrowers under its “Mid-Credit Loan” product ranges from 3.451% to 9.450% annually, while its general credit loan rate is 3.858% to 7.170%. The lower end of the mid- and low-credit loan rate is 0.407 percentage points lower than the general credit loan rate. Similarly, Kbank’s mid- and low-credit loan (Credit Loan Plus) rate of 4.50%–12.39% also has a lower bound that is 0.01 percentage points below its general credit loan rate (4.51%–8.28%). This phenomenon, where interest rates for lower-credit borrowers are lower than those for high-credit borrowers, is known as an “interest rate inversion.”
This trend has occurred frequently since 2021, when financial authorities began setting mid- and low-credit loan targets for internet banks. The government has encouraged internet banks to maintain a certain ratio of mid- and low-credit loans—set at 30% (based on average balance) from last year to next year—to incentivize lending to these borrowers. To meet this target, banks have adjusted rates by raising interest rates for high-credit borrowers and lowering them for mid- and low-credit borrowers. As of the third quarter, the three banks’ mid- and low-credit loan ratios exceeded 30%: Kakao Bank (32.9%), Kbank (34.4%), and Toss Bank (35.2%).
Government Policies and Their Impact on Banks
Financial authorities’ requirement that mid- and low-credit loan balances meet specific thresholds has intensified banks’ challenges. To surpass these targets, banks must increase lending to mid- and low-credit borrowers, even if it means lowering interest rates. This has led to a situation where the interest rates for lower-credit borrowers are significantly lower than those for high-credit borrowers, creating a unique market dynamic.
The financial authorities’ year-end loan balance targets for internet banks are as follows: Kakao Bank, 5 trillion 34.7 billion Korean won; Toss Bank, 4 trillion 585.2 billion Korean won; and Kbank, 2 trillion 630.3 billion Korean won. As of the end of the third quarter, Kakao Bank’s balance stood at approximately 4.9 trillion Korean won, requiring an additional 100 billion Korean won in mid- and low-credit loans. Kbank’s balance was slightly above its target at 2.7 trillion Korean won.
Challenges Ahead for Mid- and Low-Credit Borrowers
As year-end approaches, mid- and low-credit borrowers—some of whom receive performance bonuses and have temporary financial flexibility—may repay loans, potentially reducing mid- and low-credit loan balances and ratios. Banks remain vigilant. A source from an internet bank stated, “Under government policies to minimize household loan growth, increasing mid- and low-credit loans—which carry higher default risks—creates difficulties in managing soundness and ensuring sustainable growth.”
Key Points to Consider
- Interest Rate Inversion: This phenomenon occurs when lower-credit borrowers receive lower interest rates than high-credit borrowers, which is currently observed among internet banks.
- Government Targets: Financial authorities have set mid- and low-credit loan targets for internet banks, aiming to encourage lending to these groups.
- Banks’ Strategies: To meet these targets, banks have adjusted their interest rates, often lowering them for mid- and low-credit borrowers while increasing them for high-credit borrowers.
- Risks Involved: Increasing mid- and low-credit loans poses higher default risks, making it challenging for banks to maintain soundness and ensure sustainable growth.