South Korea's Financial Services Commission's mid-rate livelihood stability loan, announced in June to support living expenses for mid- and low-credit borrowers, is spreading mainly among non-bank lenders. Commercial banks have yet to show concrete moves to launch it, but banks are rolling out their own mid-rate and inclusive finance products. Financial authorities are also seeking to expand household-loan volume management incentives for mid-rate loans, raising expectations that loan supply for mid- and low-credit borrowers will increase.

Savings banks follow with launches; commercial banks 'undecided'

The financial sector said on Tuesday that the mid-rate livelihood stability loan was first launched on June 29 by six savings banks: KB, OK, SBI, Shinhan, Yegaram and Korea Investment Savings Bank.

The product is supplied using financial companies' own credit to mid- and low-credit borrowers in the bottom 50 percent of credit scores. Borrowers can receive up to 10 million won per person across all financial institutions combined. Interest rates at the initial launch institutions range from 5.9 to 15.27 percent a year.

Financial authorities said at the time of the product's introduction that they planned to expand providers in the second half to 14 savings banks and to banks, card companies and the capital industry.

Further launches are continuing across the industry. Starting with Daol Savings Bank and Lotte Capital, BNK Capital, JT Chunae Savings Bank and NH Savings Bank have rolled out the product in turn. Welcome Savings Bank and Acuon Savings Bank are also preparing to launch it in September, the sector said.

Even among savings banks that launched the product in the first round, there is an assessment that actual demand for living expenses is being confirmed. An official at a savings bank in the industry said it drew strong interest from financial consumers from the early period after launch, adding that demand appeared to be mainly for small amounts of money needed for everyday life rather than large loans.

In contrast, none of the major commercial banks has separately launched the Financial Services Commission's mid-rate livelihood stability loan. Some reports said banks were preparing the product with a goal of launching it by late September, but no concrete launch schedule has been set so far.

Some banks say they have no plan to launch it at this time. Other banks say they are leaving open the possibility of an internal review, but nothing specific has been decided.

A bank official said there is nothing confirmed yet. The official said related departments could be discussing or reviewing it, but there is no immediate decision as far as the official knows.

Banks also expand mid-rate lending, focus on own products

That does not mean banks are passive about supplying loans to mid- and low-credit borrowers. Separate from the Financial Services Commission's mid-rate livelihood stability loan, they have been introducing their own mid-rate and inclusive finance products this year.

Hana Bank launched in June the Hana OneQ Safe Mid-rate Loan, offering up to 10 million won to customers in the bottom 50 percent of credit scores. Shinhan Bank on Thursday introduced the Super SOL Mid-rate Loan, offering up to 20 million won to customers in the bottom 50 percent of NICE or KCB credit scores. NH Nonghyup Bank has also launched the NH Allone Wonderful Happy Companion Mid-rate Loan this month.

Woori Bank launched in March the Woori WON Dream Living Expenses Loan, offering up to 10 million won to financially underserved groups. KB Kookmin Bank also introduced in March the KB Kookmin Leap Loan, which refinances non-bank unsecured loans into the banking sector.

Some interpret that banks may differ in how they judge the need to add a separate mid-rate livelihood stability loan, as each bank already operates products for mid- and low-credit borrowers in line with its own inclusive finance strategy. The fact that the mid-rate livelihood stability loan is supplied using financial companies' own credit without guarantees is also cited as a factor in considering soundness burdens.

A financial sector official said banks are unlikely to have a strong reason to raise the burden of delinquency rates by newly handling mid-rate products. The official said it can be seen that each bank is expanding support for mid- and low-credit borrowers in line with its own inclusive finance plans.

Incentives for volume limits expanded; will mid-rate supply increase?

After that, expanded incentives in financial authorities' household-loan volume management could be a variable. The Financial Supervisory Service has decided from this month to fully exclude increases in private mid-rate loans by savings banks, mutual finance institutions and specialized credit finance companies from household-loan volume management targets.

Previously, 80 percent of the increase in private mid-rate loans by savings banks and mutual finance institutions, and 40 percent for specialized credit finance companies, was excluded from totals. Authorities raised all of those to 100 percent. For financial companies, incentives to increase supply may rise because expanding mid-rate loans would not increase the burden of overall household-loan volumes.

Incentives for the banking sector are also expected to expand. Financial authorities are set to finish this week work on adjusting each bank's household-loan volume targets for the second half, and are reviewing a plan to increase the share of banks' increases in private mid-rate loans excluded from totals to more than 50 percent from 30 percent. A plan to flexibly adjust the exclusion share depending on actual supply trends is also being discussed.

The specific adjustment plan has not been finalised, but if easing the volume burden becomes reality, room to expand loans for mid- and low-credit borrowers across the financial sector, including banks, is expected to increase further.

The financial authorities' initially announced expansion of the mid-rate livelihood stability loan across the entire financial sector is still appearing mainly among non-bank lenders, but attention is on whether supply of mid-rate lending overall will expand on the back of increased volume incentives.