Some South Korean savings banks are cutting interest rates on small emergency loans far more sharply for high-credit borrowers than for those with weaker scores, a sign that lenders are screening applicants more rigorously to limit default risk.
Average rates charged to borrowers with credit scores above 900 on emergency loan products offered by KB, NH and Daol savings banks fell between 0.92 and 2.02 percentage points in September from December last year, according to financial industry data released on the 22nd. Rates for borrowers scoring between 601 and 700, by contrast, dropped only 0.07 to 1.60 percentage points. Within the same products, the gap in rate cuts between high- and low-credit borrowers ranged from 0.42 to 1.01 percentage points. Emergency loans are small unsecured credit loans aimed at borrowers in need of quick cash.
Industry officials link the disparity to risk management at savings banks. By offering deeper discounts to borrowers with greater repayment capacity, lenders are containing their exposure to bad loans, they said.
At NH Savings Bank, the average rate on its NH Emergency Loan fell 0.92 percentage point for borrowers scoring above 900 over the period. Rates for those scoring 601 to 700 edged down just 0.07 percentage point, leaving them effectively unchanged. The cut for high-credit borrowers was 0.85 percentage point larger.
Daol Savings Bank's Fi Emergency loan showed a 1.62 percentage point drop for borrowers above 900, compared with 0.61 percentage point for those in the 601-700 range. The 1.01 percentage point difference was the widest among the products surveyed.
KB Savings Bank followed a similar pattern. On its kiwi Women's Emergency Loan, the average rate fell 2.02 percentage points for borrowers above 900 and 1.60 percentage points for those scoring 601 to 700. For the kiwi Emergency Loan, the cuts were 1.92 percentage points and 1.39 percentage points, respectively.
The rate spread between the two credit bands at NH Savings Bank widened to 1.81 percentage points in September from 0.96 percentage point at the end of last year. For KB Savings Bank's kiwi Emergency Loan, the gap widened to 1.79 percentage points from 1.26 percentage points over the same period.
"From the standpoint of a savings bank that has to manage asset soundness, we need to select borrowers with strong repayment capacity," an official at one savings bank said. "Just as commercial banks generally screen borrowers before extending loans, the savings bank sector is in the same position."