By Na Jeong-ju
Staff Reporter
Banks are raising their bets on the subprime loan market to meet growing demand for the riskier, but highly profitable loans, providing a challenge to small-sized consumer financing firms that have enjoyed robust earnings growth.
Some banks have tapped the lucrative market through their consumer financing units and launched services for those who couldn't borrow from banks due to credit problems. Kookmin Bank, the country's largest lender, plans to set up a subsidiary this year to deal with the subprime loans, while its smaller rivals, Shinhan Bank and Woori Bank, are discussing terms to advance into the market.
Late last month, Hana Bank launched the sale of uncollateralized commercial loans for those who are not serviced at banks through its subsidiary Hana Capital. The loans, carrying annual interest rates of 13 to 37 percent, are offered only through the Internet.
``As the loans are available only for those who have bad credit records, the interest rates are higher than the ordinary loans you see at banks,'' a Hana Bank official said. ``We regard the product as a litmus test. We will soon launch the full line-up of commercial loans after gathering more information about the market.''
Amid falling interest margins and sluggish demand for home-backed loans, banks are increasing uncollateralized commercial loans to salary workers and the self-employed. The commercial loan market is growing at a faster pace as banks have eased lending rules for those with stable income sources and raised the ceiling for the amount in loans they can receive.
Last year, Woori took over Hanmi Capital, a consumer financing firm, and said it will tap the subprime lending business. Shinhan also is taking steps to enter the riskier loan market through its consumer financing unit, Shinhan Capital.
According to the Financial Supervisory Service (FSS), it is estimated that more than 5 million people are using consumer financing firms to borrow money as they cannot use bank loans.
Consumer financiers usually demand much higher borrowing rates than banks, but their loans have gained popularity.
Large-sized firms increased loans by more than 50 percent last year on strong demand for home-backed loans and tougher lending regulations at banks.
According to FSS data, the combined outstanding loans at 59 consumer financing firms with more than 7 billion won in assets stood at 3.4 trillion won as of the end of last year, up 51 percent, or 1.16 trillion won, from a year ago.
The firms enjoyed an upswing in outstanding loans as the government enforced tougher rules to make it more difficult for homebuyers to borrow from banks in a bid to stabilize the housing market.
Encouraged by the fast growth of the subprime loan market, major banks are putting their chips in.
``Based on our strength in retail banking and risk management capabilities, we will come closer to potential customers who have had difficulty in getting bank loans,'' Kookmin Bank CEO Kang Chung-won said late last year.