94.8% of personal credit loans from 6 firms classified as mid-rate
Average loan rate at 11.72% per year
Cumulative lending reaches 811.4 billion won, delinquency rate at 1.09%
Online investment-linked finance companies are expanding mid-rate loan supply to borrowers with low to mid-range credit scores. Among the personal credit loans offered by six such firms participating in financial institution-linked investment, 94.8% qualify as mid-rate loans. Borrowers in the bottom 10% by credit score account for 45% of the loan supply, and the average lending rate is about 3 percentage points lower than that of savings banks.
According to the Online Investment-Linked Finance Association on Tuesday, the share of private mid-rate loans among personal credit loans issued by six firms — MoneyMove, Mouda, Honest AI, Eight Percent, PFCT and Hanpass Financial — stood at 94.8% as of the end of September. The figure reflects the proportion of loan amounts meeting private mid-rate loan requirements, including credit score thresholds and interest rate caps.
Lending to low-credit borrowers was also notable. The average credit score of borrowers across the six firms was 686 on the Korea Credit Bureau scale. Borrowers with scores of 675 or below — the bottom 10% — accounted for 45.0% of total loan supply.
Despite the high share of low-credit borrowers, the delinquency rate remained near 1%. As of the end of September, the personal credit loan delinquency rate across the six firms was 1.09%, a figure that includes loans overdue by 30 days or more as well as personal rehabilitation claims. Excluding personal rehabilitation claims, the rate falls to 0.76%. However, given that financial institution-linked personal credit lending has been operating for just over a year, the long-term health of the portfolio warrants continued monitoring.
The average loan rate was 11.72% per year, 2.95 percentage points below the 14.67% average for personal credit loans at savings banks over the same period. Cases of borrowers cutting their interest burden by refinancing out of high-rate loans have already emerged. A salaried worker in their 40s with a credit score of 576 refinanced 25 million won ($18,400) borrowed from a non-bank lender through an online investment-linked finance firm, lowering the rate from 18.4% to 12.1% per year. The move reduced the annual interest burden by about 1.6 million won.
As financial institution-linked investment has gained momentum, the scale of loan supply has grown sharply. From the end of May last year through the end of September this year, the six firms originated a cumulative 811.4 billion won in personal credit loans to 53,038 new borrowers. Monthly new originations surged roughly 36-fold, from 2.75 billion won in May last year to 99.94 billion won in September this year.
Cooperation with savings banks has been a key driver of that growth. The sector launched financial institution-linked investment services with savings banks in May last year, and the number of savings banks participating in linked investment with individual firms has since grown to as many as 20.
Financial regulators are also supporting the expansion of lending to low- and mid-credit borrowers. The Financial Services Commission announced in September a plan to introduce a designation for top-performing online investment-linked finance lenders serving low- and mid-credit borrowers. Under the scheme, firms with strong lending track records, credit assessment capabilities and financial soundness would see their self-funded investment limit for low- and mid-credit personal loans raised from 20% to 40%, and their financial institution-linked investment limit lifted from 40% to 50%. The FSC plans to accept and review applications for innovative financial service status, targeting completion in the first quarter of next year.
Hong Jae-moon, chairman of the Online Investment-Linked Finance Association, said inclusive finance is "the starting point and the reason for being of the industry," adding that the association would work with the sector to build a fair competitive environment "so that the industry's drive for innovation is never broken."
snsd@heraldcorp.com
