Banks cap interest rates for low-credit borrowers in push for inclusive finance

South Korea's major banks are accelerating their push for inclusive finance, rolling out mid-rate loan products to prevent low- and mid-credit borrowers from being pushed toward high-cost lenders. The banks are expanding credit supply to this segment by building out proprietary credit-scoring capabilities and significantly increasing the scale of their support.

Shinhan Bank said Tuesday it would launch a "Shinhan Mid-Rate Loan" capping the maximum interest rate at 6.9 percent per year for low- and mid-credit borrowers. Customers whose external credit scores — from NICE or KCB — fall in the bottom 50 percent will have their rate capped at 6.9 percent annually if their calculated rate exceeds that threshold; if it falls below, the calculated rate applies as-is. The cap is automatically applied to personal unsecured loans, with some products excluded.

The product is part of a mid-rate loan support package within Shinhan Financial Group's "Inclusive Finance 2.0 ON" project, a 5 trillion won ($3.26 billion) initiative announced June 10. The bank also plans to launch a dedicated mid-rate loan through its integrated financial platform "Super SOL" in August. "Along with introducing our own mid-rate loan, we have worked to refine our screening framework for low- and mid-credit customers and improve the repayment terms of the Saeheemanghollssi loan," Shinhan Bank said.

Hana Bank launched its own digital-only unsecured loan product, the "Hana WON Q Ansim Mid-Rate Loan," on June 19. The product targets customers in the bottom 50 percent by personal credit score, offering a fixed annual rate of 5.5 percent and a maximum loan limit of 10 million won. It drew attention as the first bank-funded mid-rate loan product offered at a near-low-rate level in the banking sector. The product also supports a loan-switching service, reducing the interest burden for borrowers currently holding high-rate loans.

Last month, NH NongHyup Bank became the first top-tier lender to introduce a low-rate unsecured loan exclusively for credit rehabilitation clients, called the "NH Credit Recovery Partner Loan." Unlike policy-backed loans that rely on guarantee agencies, the product is funded entirely from the bank's own resources. It offers up to 1 million won at an annual rate of 7 percent to customers undergoing credit rehabilitation procedures, with a two-year maturity and no early repayment penalty. The product will be available for three months, with a total supply cap of 30 billion won.

Private-sector mid-rate loans differ from policy-backed guaranteed loans in that banks bear the credit risk of borrowers directly. This is why banks have been investing heavily in alternative data-based credit scoring models to broaden financial access for low- and mid-credit customers. The aim is to incorporate the characteristics of thin-file borrowers and young adults — who lack sufficient financial transaction histories — into credit assessments to improve their access to finance.

In developing its mid-rate loan support package, Shinhan Bank revised its screening criteria to cover not only low-credit-score customers but also groups with limited financial histories, such as full-time homemakers and retirees. The goal is to expand mid-rate loan supply by segmenting customers more finely by repayment capacity and financial behavior. KB Kookmin Bank has also introduced a specialized credit scoring model for low-credit customers using alternative data, and is actively working to identify and serve mid- to low-credit borrowers.

Banks are also sharply expanding the scale of their inclusive finance commitments. KB Kookmin Bank has set a target of 1.53 trillion won in private-sector mid-rate loan supply this year for customers in the bottom 50 percent by personal credit score. In the first quarter alone, it disbursed 306.8 billion won — roughly 48 percent of the combined supply across the four major commercial banks. Separately, the bank plans to launch a "Youth-Exclusive Saeheemanghollssi" product offering up to 5 million won for borrowers aged 34 and under.

Woori Financial Group plans to provide a total of 3.5 trillion won in financial support this year, adding 2.3 trillion won on top of its original annual target of 1.2 trillion won. The group intends to supply 1.1 trillion won in mid-rate loans through its banking and card affiliates. Its "Woori WON Dream Living Expense Loan," launched in March, uses an alternative credit scoring model drawing on telecommunications data, driver information, automatic transfers, micropayment records and retail purchase history, and has already provided emergency living funds to about 3,000 customers.