Authorities blame internet-only banks' mortgage loans for high household debt

A woman enters KakaoBank's office in Seongnam, Gyeonggi Province, in this March 2022 photo. Newsis

By Lee Yeon-woo

Financial authorities are closely watching internet-only banks, identifying their non-face-to-face mortgage loans as a contributing factor to the rapid surge in household debt. Authorities are investigating whether the loan screening procedures and management of default rates of such banks are appropriate.

“Given the explosive growth in mortgage loans by internet-only banks, it's essential to review their operations,” said an official from a financial agency. “We are determining which areas should be regulated more strictly, based on relevant data.”

Mortgage loans from internet-only banks have gained popularity, capitalizing on their non-face-to-face services and competitive interest rates. The combined loan balance of these banks for the second quarter of this year stood at 21.2 trillion won ($15.8 billion), which marks a 35 percent or 5.43 trillion won increase from last year.

KakaoBank reported record profits for the first half of this year while K Bank saw a whopping 41.4 percent rise in profits. Toss Bank currently does not offer mortgage loans but intends to enter the market in the second half of the year.

Financial authorities suspect that the aggressive expansion of mortgage loans by internet-only banks is inappropriate, as it doesn't align with the banks' original focus of providing loans for individuals with medium to low credit scores. Mortgage loans are typically more suited for those who possess high-value collateral, rather than for those with lower credit ratings.

In response, internet-only banks are defending their stance, emphasizing that the mortgage loans they issue are a drop in the bucket compared to the broader market.

“The share of KakaoBank's mortgage loans is less than 2 percent of the entire mortgage loan market,” KakaoBank CEO Yun Ho-young said to reporters, Thursday, while en route to a meeting attended by 17 bank CEOs. “We don't concur with the notion that KakaoBank is the primary driver behind the surge in household loans.”