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Internet-only bank

Toss Bank debuts amid government's tightening of loans

Financial regulators are pressuring the internet banks to focus only on loans to citizens with lower credit scores

By Oct 05, 2021 (Gmt+09:00)

Toss Bank CEO Hong Min-taek at the media conference on Oct. 5. 
Toss Bank CEO Hong Min-taek at the media conference on Oct. 5. 

South Korean government’s toughening stance on household loans is having a direct impact on the fast-growing internet banks in the country. The three internet-only banks, KakaoBank Corp., K Bank and Toss Bank, are expected to post lower earnings in 2021 than consensus due to the government intervention to control the total size of loans in the country until the end of this year.

According to the banking industry, the financial regulators have guided Toss Bank, the third internet-only bank in Korea launched on Oct. 5, to limit the size of its household loans this year below 500 billion won ($421 million). Following the guideline, Toss Bank will significantly cut the borrowing limit for individuals from the initially planned 270 million won ($227,000) a year down to the individual’s annual income level.

Likewise, K Bank also announced on Oct. 5 that the borrowing limit through its credit loans will be cut from 250 million won ($211,000) per individual to 150 million won ($126,000). Loans that can be made through overdrawn accounts have also been cut from 150 million won ($126,000) per account to 100 million won ($84,000). The figure will eventually be lowered to the borrower’s annual income level, added K Bank.

The Kospi-listed Kakao Bank has altogether halted the new creation of checking accounts that can make overdraft loans. Analysts say that Kakao Bank’s such move is to concentrate its focus on satisfying the government’s request to increase the portion of its mid-range credit loans out of its total credit loans from 12.4% as of late August to a pre-agreed level of 20.8% by the end of 2021.

The analysts also noted that it is important for Kakao Bank’s business sustainability to meet such a target as the government’s main rationale in allowing the creation of the internet-only banks amid strong opposition from the traditional banking players was to address the financial needs of the citizens in the low and medium-credit range.

Ironically, however, the government’s increasing intervention to control the total cap of loans in the country will inevitably impact Kakao Bank’s mid-range loans. That’s why Kakao Bank has no option but to reduce the amount of high-interest loans and focus on mid-interest loans only.

“It’s a questionable move by the government to include the mid-range loans as part of the recent regulation to control the total amount of loans in the country. The government’s primary request in allowing the launch of the internet banks was to expand the amount of mid-range loans,” said an official of a major internet-only bank.

TOSS BANK OFFICIALLY KICKS OFF AMID GROWING INTERVENTION

Toss Bank has made its official first day of operation on Oct. 5 as the third internet-only bank in South Korea, following K Bank and Kakao Bank launched in 2017.

As a late-comer in the scene, Toss Bank’s competitive edge lies in higher interest rates for the savers as well as lower rates for the borrowers. Toss Bank has the lowest interest rate for credit loans in the country with 2.76% per annum, much lower than the five traditional banks with around 3% and even lower than its main rivals Kakao Bank with 2.86% and K Bank with 2.87%.

Toss Bank CEO Hong Min-taek at the media conference on Oct. 5. 
Toss Bank CEO Hong Min-taek at the media conference on Oct. 5. 

The bank also offers an annual interest rate of 2.0% for savings accounts, much higher than 1.5% offered by Kakao Bank and K Bank.

“Toss Bank is not just a better bank but a new type of bank. We will tackle all obstacles that the customers are facing and maximize financial benefits for them through new technologies and data analysis,” said Toss Bank CEO Hong Min-taek.

The industry landscape is marked by the three players having strengths in different areas. Kakao Bank is planning to launch contactless housing loan products by the end of this year, with the conviction that it will attract a high number of borrowers from its 17 million users. The company, since its successful listing on Kospi, is rapidly expanding into funds, insurance and personal data businesses.

K Bank, which has 6.6 million users as of late September, distinguishes itself from other players with its close partnership with the country’s largest crypto exchange, Upbit. The bank will also create synergies with its parent company KT Corp. by launching a wide range of products in collaboration. K Bank posted its first-ever quarterly operating profit in the second quarter of this year.

K Bank has introduced a new corporate logo and a new slogan, \
K Bank has introduced a new corporate logo and a new slogan, "make money," in August.

The mid-range credit loans market will be the first battleground for the three internet banks, with the government pressuring them that they will face difficulties in entering new sectors such as insurance if they do not significantly ramp up loans to the citizens with low and medium-level credit scores.

Toss Bank has set the highest target in this area, aiming to have 34.9% of its total loans to be given out to borrowers with low and medium-credit citizens. Toss Bank will raise the figure to 42% by 2022 and 44% by 2023.

Its rivals have lower target figures, with Kakao Bank’s 20.8% by this year, 25% by 2022 and 30% by 2023. K Bank’s target is 21.5% by 2021, 25% by 2022 and 32% by 2023.

“The government is not being consistent. They want citizens with lower credit scores to borrow more money from internet banks. But they are saying the country’s total household loans must be tightly controlled,” said an internet bank representative.  

Write to Jin-woo Park at jwp@hankyung.com

Daniel Cho edited this article.

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