The government's household loan restriction policy has put the brakes on the rapid growth of internet banks. The proportion of household loans among the loans offered by internet banks exceeds 90%, and without alternative means such as corporate loans, the impact of the regulations is expected to be significant. Internet banks are trying to strengthen loans for individual entrepreneurs, but they are concerned about soundness management.
According to the financial sector on the 2nd, internet banks such as KakaoBank, Kbank, and Toss Bank are modifying their loan supply plans for the second half of the year in accordance with the Financial Services Commission's household loan restriction policy. Previously, the Financial Services Commission announced significant household loan regulations on the 27th of last month, stating that it would reduce the total increase in household loans for the second half of the year to 50% of the initial plan. In addition, it has restricted the maximum limit for mortgage loans to 600 million won and limited the credit loan limit to 100% of a financial consumer's annual income. Internet banks also face a situation where they must reduce household loan supplies in the second half of the year according to the Financial Services Commission's policy. The Financial Services Commission predicts that the annual increase in household loans for the financial sector will decrease by 20 trillion won compared to the initial target due to these regulations.
This regulation is particularly fatal for internet banks with short operating histories. Traditional banks are already managing household loans in the tens of trillions of won and have ample interest income secured from existing loans. Furthermore, even if household loan growth is blocked, traditional banks can increase their proportion of corporate loans or strengthen their business capabilities outside of lending, such as investments. In contrast, internet banks have not secured adequate revenue sources outside of household loans. As of the end of March, household loans accounted for 93.4% of the total loans among the three internet banks. Loans for individual entrepreneurs are at a nascent stage, and there has been no initiation for small and medium enterprise loans.
In particular, the impact on the interest income of KakaoBank and Kbank, which have rapidly expanded by managing mortgage loans, is unavoidable. In 2021 alone, KakaoBank's mortgage loans amounted to 9 trillion won, while Kbank's reached 1 trillion won. By the end of March this year, their mortgage loans had increased to 25 trillion won and 9 trillion won, respectively. Notably, Kbank took an aggressive sales stance by increasing the limit for living stabilization fund mortgage loans from 100 million won to 1 billion won in January this year. As a result, the Financial Supervisory Service is reported to have called in the deputy governors of banks and criticized Kbank's business practices during a meeting urging household loan management. Toss Bank has not yet handled mortgage loan products for home buying.
Internet banks are seeking avenues such as loans for individual entrepreneurs and non-interest revenue. Internet banks have already anticipated the slowdown in household loan growth since last year and are accelerating the development of products for individual entrepreneurs. Kbank's CEO, Choi Woo-hyung, announced a strategy to strengthen loans for individual entrepreneurs during a press briefing in March. KakaoBank plans to launch non-face-to-face collateral loans targeted at individual entrepreneurs in the second half of this year.
However, risk management for loans to individual entrepreneurs is a concern for internet banks. Loans to individual entrepreneurs have stricter credit evaluations compared to salaried workers and a higher potential for loss compared to collateral loans. An official from an internet bank stated, "While we need to increase loans to individual entrepreneurs to grow our overall lending while complying with the household loan restrictions, managing soundness is not easy." This official remarked, "I agree that we should strengthen the competitiveness of individual entrepreneur products, but considering the delinquency rate, there are aspects that make us hesitant to actively increase the loan scale."