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November 28, 2021

Toss Bank halts loan services on authorities’ debt limit

PUBLISHED : October 15, 2021 - 10:18

UPDATED : October 15, 2021 - 10:18

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Toss Bank employees are seen at the headquarters in Seoul on Oct. 5. (Yonhap)

Toss Bank, South Korea’s third internet-only bank, said on Oct. 14 that it will suspend new loans through the end of this year, after financial authorities declined to increase the new bank’s lending limit.

The banking arm of fintech giant Viva Republica said its loan limit of 500 billion won ($422 million) had been exhausted as of 1 p.m. on Oct. 14 and it has decided to halt loan services.

“The decision is made to comply with the government‘s household debt stabilization policy and also after taking into account all the market conditions,” an official from Toss Bank said.

Toss kicked off its official operation on Oct. 5 with 1.7 million users registering before its launch.

Almost 300 billion won, or 60 percent of the lenders’ fund, was lent out in just four days.

When applying for the banking license in 2019, Toss Bank said that it planned to lend out 469.3 billion won in its first year, 34.9 percent of which the lender promised to distribute to low- and mid-credit holders. Expanding financial inclusiveness for thin-filers, who lack access to decent financial services, is one of the government’s goals and motivations to approve internet-only lenders Kakao Bank, K bank and Toss Bank.

However, the government appears to be more concerned about the country’s soaring household debt, which stood at a combined 1,052 trillion won ($888 billion) at the end of August, adding 6.5 trillion won from a year prior. Despite the government’s efforts, loan growth has shown no signs of waning as more people have borrowed to buy homes.

In August, the financial authorities ordered local banks to stick with a 6 percent maximum in total loan growth, and lenders are likewise strengthening their grip on loan sizes in accordance with the new guidelines.

Analysts stated that these regulations on loans could take a toll on internet-only banks.

”If household loan regulations are applied equally to internet-only banks, these could be detrimental to their growth,” said Jun Bae-seung, an analyst at EBest Investment and Securities. “Toss Bank might need to revise its growth strategy.”

The concern over regulations appears to have a negative impact on the market valuation of internet-only banks.

Shares in Kakao Bank plunged 41 percent from its record high of 92,000 won on Aug. 19 to 54,100 won on Oct. 12. Kakao Bank became the largest bank in terms of market capitalization when it went public in August on the back of market expectations that the lender can set itself apart from its traditional competitors.

K bank, the nation’s first internet-only bank, saw its market valuation falling from as high as 13 trillion won in September to 6.4 trillion won this week in the over-the-counter market.

Meanwhile, Toss Bank also said that it is opening up the service to some 1.1 million preregistered users in line Oct. 14 afternoon. The bank attracted almost 1.7 million preregistrations before the launch and gradually opened up its services in order of registration.

By Park Ga-young (gypark@heraldcorp.com)

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