Korea's three internet-only banks - KakaoBank, K Bank and Toss Bank - kept the share of loans to mid-to-low credit borrowers in the 30 percent range in the second quarter this year, continuing to supply inclusive finance. The banks are expanding financial access for mid-to-low credit borrowers by upgrading credit scoring models, offering refinancing loans and using alternative data.

KakaoBank's loan balance share for mid-to-low credit borrowers in the second quarter was 31.9 percent, and the share of new lending was 38.4 percent, the financial sector said on Thursday. Mid-to-low credit unsecured loans supplied to individuals and individual business owners in the second quarter totalled 520 billion won, and new lending in the first half was about 1 trillion won. Cumulative supply since its launch in 2017 has exceeded 16 trillion won.

The share of mid-to-low credit borrowers was also high in refinancing loans. Of customers who switched unsecured loans from other financial firms to KakaoBank in the second quarter, 47 percent were mid-to-low credit borrowers. Among them, 57 percent refinanced unsecured loans from non-bank financial institutions to KakaoBank. Their interest rates after refinancing fell by an average of 3.2 percentage points, and those who came from the non-bank sector saw an average decline of 5.6 percentage points.

KakaoBank also saw an effect of improved creditworthiness among customers who took out its mid-credit loans. Of customers who received mid-credit loans in the second quarter, 50 percent saw their credit scores rise within 1 month after disbursement, with an average increase of 47 points. Among them, 21 percent shifted to high-credit borrowers as their credit improved.

K Bank's share of average outstanding unsecured loans to mid-to-low credit borrowers in the second quarter was 31.3 percent. The share of mid-to-low credit borrowers in new lending, based on average outstanding balance, was 32.4 percent. New supply in the second quarter was 366.3 billion won, up about 31 percent from 278.9 billion won a year earlier.

Cumulative supply of unsecured loans to mid-to-low credit borrowers since its launch stood at 9.03 trillion won as of the second quarter, exceeding 9 trillion won. Its supply of private mid-interest-rate loans in the second quarter was 235 billion won, the largest among internet-only banks and the second-largest across the broader banking sector.

K Bank is also expanding the scope of credit assessment for mid-to-low credit borrowers and customers with limited financial histories. In June it signed a business agreement with Gwangju Bank to cooperate on developing joint financial products using the two banks' credit scoring systems (CSS), as well as on screening and post-management.

Toss Bank's share of loans to mid-to-low credit borrowers in the second quarter was 34.2 percent based on a three-month average outstanding balance, and 32.7 percent based on new lending. The cumulative number of customers who have used its mid-to-low credit loans since launch is about 380,000.

Toss Bank is also using its own credit scoring model to support credit improvement for mid-to-low credit borrowers. Of such borrowers who took loans from Toss Bank in the second quarter, 44 percent saw their credit scores at external credit rating agencies rise by an average of 43 points 1 month after disbursement. Among customers who previously held unsecured loans from non-bank lenders, 36 percent repaid an average of 3.5 million won of their existing loan balances within 1 month after disbursement, and their credit scores also rose by an average of 11 points.

Toss Bank is using alternative non-financial information for credit assessment, including consumption tendencies, cash flow and payment records, in addition to financial information. Among young borrowers with mid-to-low credit, 33 percent received additional credit scores through assessments that reflected such non-financial information.

The three internet-only banks are keeping the share of loans to mid-to-low credit borrowers in the 30 percent range while focusing on more precisely assessing borrowers' repayment capacity through upgraded credit scoring models, refinancing loans and use of alternative data. The banks plan to continue upgrading their credit assessment capabilities and expand financial access for mid-to-low credit borrowers to strengthen inclusive finance.