South Korean Banks Miss Mid-Interest Loan Target by Over 1 Trillion Won

South Korean banks have fallen short of their inclusive finance goals, failing to supply over 1 trillion won in mid-interest rate loans to individuals with lower credit scores last year. This shortfall comes at a time when the Presidential Office is stressing the importance of expanding inclusive financial services, signaling intensified pressure on the banking sector.

The data from the Korea Federation of Banks reveals that commercial banks collectively supplied 8.69 trillion won in mid-interest rate loans, falling short of their 9.697 trillion won target. These loans are designed for individuals in the bottom 50% of credit scores, typically offering amounts between 20-30 million won at interest rates below 7% annually. While the supply of these loans has grown significantly since 2016, last year saw a notable decline in performance, even with a reduced target.

Bank officials attribute this shortfall to tightened loan regulations implemented in the latter half of last year. Specifically, the rule limiting loan amounts to annual income has made it difficult for many low- and mid-credit borrowers to access loans, even if they meet other criteria. This regulatory hurdle has effectively stalled the growth of mid-interest rate lending.

From a South Korean perspective, this situation highlights a critical tension between regulatory control and financial inclusion. While the government aims to protect borrowers from excessive debt, these measures inadvertently restrict access to credit for those who need it most. The emphasis on inclusive finance, as recently reiterated by Kim Yong-beom, Senior Secretary to the President for Economic Affairs, suggests a push for banks to move beyond their traditional focus on high-credit borrowers and accommodate a broader segment of the population. The challenge now lies in recalibrating regulations to facilitate this shift without compromising financial stability.