The number of internet banking users in South Korea is rising sharply, yet loan applications submitted through those channels are falling. Analysts attribute the divergence to banks tightening loan management in non-face-to-face channels after a series of household debt rules took effect from the second half of last year, including caps on mortgage limits and a stricter stress debt service ratio (DSR).
According to the Bank of Korea's economic statistics system on the 29th, the number of individual internet banking users at 19 domestic banks and the postal service stood at 234.37 million as of the end of June, counting duplicates, up 4.9% from 223.41 million in June last year and the highest on record. Corporate users rose 5.5% to 15.68 million.
Loan applications through internet banking, by contrast, totaled 5.41 million in the first half, down 10.5% from 6.05 million a year earlier. The value of loan applications fell 26.0% from a year earlier. Internet banking use continues to grow, but loan applications are shrinking.
The same pattern appeared in domestic payment and settlement data released by the central bank the same day. Daily average loan application transactions averaged 30,000 in the first half, down 10.5% from a year earlier, while the daily value fell 26.0% to 600 billion won ($430 million). Over the same period, the value of fund transfer services rose 24.4%.
Loan applications through internet banking have plunged each time household debt rules were tightened. In the third quarter of last year, immediately after the June 27 measures capped mortgage limits and the third phase of the stress DSR took effect on July 1, the value of loan applications fell 34.9% in just three months. As the September 7 and October 15 measures followed and borrowing capacity shrank, the average amount per application fell 9.2%, from 25.36 million won in the second quarter of last year to 23.03 million won in the second quarter of this year.
Banks have also raised their lending bar as rates climbed. In the central bank's loan officer survey, the lending attitude index for household mortgages stood at minus 19 in the second quarter and was projected at minus 11 for the third quarter. A lower reading means credit is harder to obtain. The weighted average mortgage rate on new loans at deposit-taking banks rose more than 0.5 percentage points, from 3.96% last September to 4.48% in July, the highest level in two years and eight months.
The gap with the property market is also widening. According to KB Real Estate, Seoul's home sales price index stood at 109.4 in September, up 9.4% so far this year. Seoul apartment transactions, meanwhile, plunged from 8,992 in May to 3,157 in August. Even as prices rise, tight credit is keeping deals from closing.
Internet banking loan usage may decline further in the second half, observers said. After financial regulators capped this year's household debt growth target at 1.5%, most banks exceeded their volume targets around July and restricted non-face-to-face lending first. Hana Bank suspended new non-face-to-face mortgage lending from August, and Shinhan Bank restricts non-face-to-face credit loans first once daily application volumes exceed internal thresholds. Woori Bank has also capped daily application volumes for non-face-to-face credit loans.
Regulators raised the household debt growth target to 3.0% in August, giving banks additional lending capacity, but much of it is being channeled into group lending such as interim and balance payments for new apartments. Group loans are often handled through loan brokers rather than applied for directly by individual borrowers through internet banking, limiting any increase in non-face-to-face applications, analysts said.
An official at a commercial bank said banks have little choice but to close non-face-to-face lending channels such as internet banking first whenever regulators tighten rules. "Recently, the rules have become so complex and loan conditions so varied that more cases are going through loan brokers rather than internet banking," the official said.
