Digital banks absorb mortgage market by offering competitive rates
By Anna J. Park
Internet-only banks have logged substantial growth in the number of mortgages offered to borrowers, seeing their collective balance increase year-on-year by more than 70 percent during the past year, far surpassing the country’s four major lenders’ increase rate that stood at 3 percent last year.
According to the data submitted to main opposition Democratic Party of Korea Rep. Yang Kyung-sook on Monday by the three internet-only banks — KakaoBank, Kbank and Toss Bank — the aggregate balance of their mortgage loans stood at 26.6 trillion won ($19.9 billion) as of the end of last year. This represents a year-on-year increase of 11.45 trillion won, or 70.8 percent, compared to the end of 2022. The figures also include loans for “jeonse,” Korea’s unique renting system involving the payment of a large lump-sum deposit at the beginning of the lease contract, which is subsequently returned at the end of the agreement.
During the same period, the total balance of mortgage loans at the four major banks — KB Kookmin, Shinhan, Hana and Woori — increased to 431.9 trillion won, from the previous year’s 418.3 trillion won, showing only a 3.3 percent year-on-year increase.
The contrasting moves by the traditional and the digital banks indicate that the internet-only lenders are aggressively increasing their share of the housing loan market by offering competitive interest rates, on top of their more convenient online loan procedures.
Logos of internet-only banks in Korea
Despite financial authorities’ calls on banks last August to strengthen risk management on household loans, internet-only banks still managed to provide lower interest rates to borrowers than the four major banks. Data from the Korea Federation of Banks (KFB) shows that the average interest rates on mortgage loans at KakaoBank and Kbank stood at 4.44 percent and 4.34 percent, respectively, lower than those of the four major banks that range from 4.51 percent to 4.59 percent.
By banks, Kbank logged the highest year-on-year growth with a whopping 114 percent, followed by KakaoBank’s 60.3 percent. Toss Bank launched a jeonse loan service last September.
However, there has been criticism that internet banks have deviated from their original purpose of supplying loans to individuals with medium or low credit ratings, while focusing instead on the stable cash-cow business of mortgages.
