South Korean financial regulators are stepping up oversight of the country’s internet-only banks amid concerns that a record-breaking stock market rally is encouraging retail investors to borrow heavily to buy shares.
The move comes as South Korean equities trade near all-time highs, raising fears among policymakers that easy access to credit through digital lenders could fuel speculative excess in an economy already burdened by one of the highest household debt levels in the developed world.
According to data submitted by the Financial Supervisory Service, South Korea’s financial watchdog, to lawmaker Lee Yang-soo of the ruling People Power Party, the country’s three internet-only banks deviated from household lending targets through May, primarily due to stronger-than-expected growth in unsecured consumer loans.
K Bank, one of South Korea’s internet-only lenders, had planned to increase other household loans, including credit loans, by $130 million through May. Actual lending growth reached $180 million, exceeding the target by 37.7%.
Toss Bank, operated by fintech company Viva Republica, had aimed to reduce such lending by $50 million but cut only $27 million. KakaoBank, the digital banking arm of South Korean technology giant Kakao Corp., had already extended $220 million in unsecured and other consumer loans by May, accounting for more than 80% of its annual target of $270 million.
Mortgage lending performance was mixed. K Bank exceeded its mortgage reduction target, while KakaoBank fell short of its goal. Toss Bank, meanwhile, surpassed its mortgage lending ceiling.
South Korean banks are required to manage household lending under government-imposed targets designed to contain debt growth. Regulators have traditionally focused on mortgage lending, but their attention has recently shifted toward unsecured credit as retail investors increasingly turn to borrowed funds to invest in stocks.
Officials are particularly concerned about overdraft facilities and other revolving credit products offered by digital banks. Because such credit lines remain available once approved, regulators have fewer tools to curb lending after the fact.
The concerns are especially acute for internet-only banks, whose mobile platforms and streamlined approval processes have made them particularly popular among younger consumers. Regulators fear the convenience offered by digital lenders could turn them into a major source of leverage for retail investors seeking to capitalize on the stock market’s rally.
Financial authorities last week summoned internet-only banks that failed to meet lending targets to review their loan management plans. All three digital lenders have since tightened lending standards by reducing credit limits, lowering overdraft ceilings and restricting new loan issuance.
The latest regulatory push underscores growing concerns in Seoul that a booming equity market, combined with readily available digital credit, could amplify financial risks and worsen South Korea’s already elevated household debt burden.
