Toss Bank to benefit from tight lending rules

Toss Bank CEO Hong Min-taek / Yonhap

Capital expansion crucial task for sustainable growth

By Lee Min-hyung

Fears of tighter lending rules will set Toss Bank off to a solid start after the internet-only lender makes its much-awaited debut on Tuesday, market insiders said.

Many critics claimed that the launch of the nation's third mobile banking service comes at an opportune time. Financial authorities recently forced commercial banks to curtail their loans due to concerns over snowballing household debt.

Toss Bank, however, is relatively free from the regulatory pressure at least in the early stage of its business, as its rivals ― such as KakaoBank ― are on track to discontinue part of their loan services. Commercial banks also have no choice but to follow suit amid concerns that they may fall victim to possible sanctions by financial watchdogs unless they abide by the regulatory guideline.

The Financial Services Commission (FSC) urges banks to keep the annual growth rate of their total household loans to five to six percent. Korean households and young customers in their 20s and 30s have gone on a buying spree of apartments or stocks by taking out loans this year. And most banks have been virtually forced to suspend part of their loans to meet the FSC's tough lending rule by the end of 2021.

Toss Bank is the biggest beneficiary of the regulation, with more than 830,000 customers signing up for the mobile lender's savings accounts during just two weeks in September. The account has so far attracted more than 1.04 million subscribers here. Toss Bank held the event before its launch and the better-than-expected response from customers raised hopes for an early success.

The lender also plans to launch a non-collateralized loan with an annual interest rate of around 2.7 percent, which is the lowest level among the nation's commercial banks. According to data from the Korea Federation of Banks, the nation's top five commercial banks' average interest rate for their loan products came in at around 3 percent in August. The figures for Toss Bank's major rivals ― KakaoBank and K bank ― also reached 4.95 and 4.27 percent, respectively, during the same period.

But some market insiders caution against having an overly optimistic outlook on Toss Bank, as it remains to be seen if the lender will be able to continue its success over the next few years.

Toss Bank CEO Hong Min-taek speaks during a press conference in Seoul, June 9. Yonhap

Toss Bank started its business with a total paid in capital of 250 billion won ($210 million), which is similar to that of its rivals ― KakaoBank and K bank, the two existing internet-only banks here ― when they started their businesses a few years ago.

Toss Bank hopes to expand the size of its capital to over 1 trillion won by the end of 2025.

“The initial market response is noteworthy, but the key for Toss Bank's sustainable growth lies in its timely capital expansion,” an industry source said. “As K bank faced difficulties in expanding its capital, Toss Bank should also be well-prepared for this.”

K bank managed to achieve a turnaround in the second quarter of 2021 for the first time since its debut four years ago. The lender had to suspend its loan business in May 2019 after continuing to fail to increase its capital.

KakaoBank also reported deficits for the first two years after its launch. But it has achieved solid growth since then and recently garnered market attention through a successful initial public offering.

As a latecomer, it could also take some time for Toss Bank to generate profits in mobile banking, according to analysts.

“Toss Bank is in a weaker position in terms of the expandability of its financial platform compared to other big tech firms, so the lender will have to spend money to offset the disadvantage,” eBest Investment & Securities analyst Jun Bae-seung said.

Toss Bank is expected to offer around 3 trillion won in loans considering its current capital level and the key to its future growth will be a possible shift in regulatory policies, according to the analyst.

Toss is one of the nation's most popular money transfer apps with more than 14 million monthly active users as of this August. This is slightly above the 13.42 million of KakaoBank during the same period, according big data analysis firm IGA Works.