Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Internet-only banks argue 'statistical ambiguity' over high default rate
By Lee Min-hyung
By Lee Min-hyung
The nation's internet-only banks have been criticized for poor management that has led to what appears to be a high default rate, but the banks argue this is nothing more than “statistical ambiguity.”
The average default rate of non-collateral (credit) loans offered to customers in their 20s by the two internet-only banks ― Kakao Bank and K bank ― came in at 3.47 percent at the end of August, according to data released by Rep. Jang Hye-young of the Justice Party. This is four times higher than that of local commercial banks.
Even if the dataset raises concerns over weak risk management, this is far from the truth as the relatively high figure was calculated less than a month after K bank resumed its business in July following a years-long capital erosion, the mobile lenders argued.
As K bank is in the initial phase of restarting its business and normalizing its financial soundness, the default rate remains high, according to the lender. But this does not mean that its ongoing business activities are exposed to potential risks, as the high default rate was calculated by including data during the period when its loan business was suspended beginning April last year.
“We suspended our loan business for more than a year and recently resumed it,” a spokesman for K bank said. “K bank was not able to manage the rate properly during the time when we suspended the business. Even though this is not the case now, the rate remains high due to the period when we fell into capital erosion.”
It is only a matter of time for K bank to normalize the rate, as its loan business is on track for a rapid recovery after succeeding in its recapitalization plan, according to the official from the nation's first internet-only lender.
“On top of that, one key reason behind the establishment of the internet-only bank here was to offer more financial assistance to young people,” he said. K bank is tightly controlling the rate, and the figure will get better as the lender keeps expanding its capital and regaining its financial health, according to him.
Kakao Bank, the leader in the internet-only bank market here, argues that its rival appears to have offered excessive loans to young people despite their weak ability to repay. But this is not true in that the dataset is the average figure combining that of Kakao Bank and K bank.
As of the end of June, Kakao Bank's default rate for loans provided to those in their 20s reached 0.31 percent, according to data from the Financial Supervisory Service, which is not a risky level.
“We do not have any problems in terms of the default rate management, compared with other commercial banks,” an official from the lender said.
The official default rate for Kakao Bank's loan business came in at 0.22 percent as of the end of June, which is nearly half that of commercial lenders' rate, according to the company.
“The average default rate of the internet-only banks here will not deteriorate, but get better in the future,” the official said.
A local banking industry source also said the outlook remains quite good for K bank's potential rebound in a short period of time.
“This is because K bank is on track for an aggressive expansion of its overall business, and it has only been a few months since the firm restarted its sales activities,” the source said. “The business model of internet-only banks is not risky. Once the company succeeds in recapitalization once again, its growth potential remains stable and solid.”