Banks Expand Debt Refinancing Options, Pressuring Savings Banks

Savings banks are feeling the pressure as major banks continue to roll out debt refinancing options aimed at borrowers in the second financial sector. While the government’s inclusive finance policy aims to reduce interest burdens for mid- to low-credit borrowers, the migration of relatively creditworthy borrowers to banks could weaken the revenue base for savings banks. Industry experts warn that if this trend continues, it could lead to a contraction in mid-interest loans and increased financial stability concerns.

According to the financial sector on June 2, major commercial banks have recently expanded the supply of mid-interest and refinancing loans targeting borrowers from savings banks and other second-tier financial institutions. Hana Bank plans to launch the 'Hana OneQ Mid-Interest Loan' this month, aimed at borrowers with credit scores in the bottom 50%. Shinhan Bank is considering expanding its refinancing loan offerings, which were previously limited to its affiliated savings bank customers, to include borrowers from other savings banks. KB Kookmin Bank is also operating related products.

Savings banks are in a complex situation. They have traditionally catered to mid-credit borrowers and those with multiple debts, who have been key to their revenue due to their stable repayment histories and income bases. If these borrowers shift to banks, the proportion of higher-risk borrowers in savings banks will inevitably increase.

In fact, users of bank refinancing loans tend to have relatively higher credit levels among mid-credit borrowers. An analysis by the loan comparison platform Bank Salad of users of the 'KB Kookmin Hope Loan' revealed a significant proportion with credit scores between 650 and 850. The KB Kookmin Hope Loan is a refinancing product aimed at wage earners with credit loans from the second financial sector.

The savings bank industry believes that if the trend of losing creditworthy borrowers continues, they will have to adopt more conservative loan assessments to manage delinquency rates. Already, the volume of private mid-interest loans in the first quarter of this year was 1.7235 trillion won, a 37.3% decrease compared to the same period last year, while the delinquency rate rose to 6.7%, an increase of 0.7 percentage points from the end of last year.

A savings bank official stated, "Although the industry is not yet in a precarious state, if this trend continues, the exodus of mid-credit borrowers could expand. If the burden of managing financial stability increases, the capacity to supply mid-interest loans may also decrease."