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Low- and medium-credit borrowers struggle to find loans
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By Lee Kyung-min
Low- and medium- credit borrowers are finding it increasingly hard to find a line of credit, marginalized by internet-only banks opting to extend loans to their high-credit peers, market watchers said Tuesday.
These financially strained borrowers cannot turn to savings banks or other higher-charging lenders either, since these lenders prioritize project financing management. If left poorly managed, the major debt portfolio risk is likely to develop into an immense spillover disaster across the financial market.
Critics say internet-only banks should strengthen efforts to provide greater access to credit for low-credit borrowers — their key responsibility and main reason they were granted banking licenses. The three internet-only banks are KakaoBank, Kbank and Toss Bank.
According to the Korea Federation of Banks, the credit score for borrowers who were able to take out loans in April averaged 907 (KakaoBank) and 938 (Kbank), as measured by the Korea Credit Bureau (KCB).
Borrowers with scores of over 900 can land a line of credit at any leading commercial lender including the top five — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup. Last month’s score exceeded 900, far higher than January’s low-800 level.
However, low-credit borrowers with scores in the bottom 50 percent — usually 860 or lower — are denied access to loans from top commercial lenders.
This is why they seek loans from savings banks and other non-banking financial institutions that charge higher rates.
However, the soaring delinquency rates experienced by savings banks and mounting project financing risk concerns as of late make it difficult to prioritize the financially vulnerable borrowers when it comes to loans.
Financial Supervisory Service data showed the number of foreclosed real estate project financing sites stood at 32 between April 1 and 15.
Savings banks have been scaling back mortgages as well as loans to self-employed businesses over the past few months.
According to market data, the figure for outstanding loans from savings banks came to 101.3 trillion won ($74 billion) as of March, the 14th consecutive month of decline since January last year.
Savings banks will have to set aside up to 3.3 trillion won in loss reserves to mitigate potential project financing vulnerabilities.
A report by NICE Investors Service showed that project financing vulnerabilities will range from 1 trillion won to 3.3 trillion won. It added that the net loss for the savings banks is expected to surge to 2.2 trillion won this year.
According to market data, the budget allocated for extending low-interest loans to low-credit borrowers came to 5.78 trillion won as of May, down from last year’s 7.1 trillion won.