Jeonse loans at major banks fall for 12th straight month as borrowers shift to internet banks

Jeonse loan balances at the five major commercial banks have fallen for 12 consecutive months, shrinking by more than 2.6 trillion won ($1.91 billion) since the start of this year. The decline has steepened notably in recent months, and as the big banks have raised the bar on jeonse and monthly-rent loans, some borrowers appear to be migrating to internet banks. While commercial banks have taken a conservative stance on jeonse lending under household credit caps, internet banks — which generally offer lower interest rates — have stepped in to absorb part of that demand.

According to financial industry data released Thursday, the combined balance of bank-funded jeonse loans at KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and NH NongHyup Bank stood at 119.99 trillion won at the end of August — down 2.66 trillion won from 122.65 trillion won at the end of December last year. The balance peaked at 123.73 trillion won at the end of August last year before declining every month for 12 consecutive months.

The pace of contraction has picked up sharply over the past two months. Nearly half of this year's total decline — 1.2 trillion won — was concentrated in July and August alone. Month-on-month decline rates of 0.51 percent in July and 0.48 percent in August were three to four times the 0.08–0.15 percent range seen earlier in the year.

Internet banks appear to have absorbed some of the displaced demand. The combined jeonse and monthly-rent deposit loan balance at Toss Bank and K bank reached 6.59 trillion won at the end of the second quarter, up 212.2 billion won, or 3.3 percent, from 6.38 trillion won at the end of the first quarter. The two internet banks grew their balances while commercial banks were tightening jeonse lending.

However, trends diverged within the internet banking sector. Kakao Bank, which holds the largest jeonse and monthly-rent loan balance among the three internet banks, saw its balance fall by about 500 billion won — from 11 trillion won in the first quarter to 10.5 trillion won in the second. As a result, the combined balance across all three internet banks edged lower overall.

The interest rate gap has also been cited as a factor driving the shift in demand. Based on disclosures by the Korea Federation of Banks, the average jeonse loan rate in August was 3.98 percent at Kakao Bank, 4.19 percent at K bank and 4.21 percent at Toss Bank — generally lower than the rates at commercial banks, which ranged from 4.20 percent at KB Kookmin Bank to 4.26 percent at Hana Bank and Woori Bank, 4.42 percent at Shinhan Bank and 4.44 percent at NongHyup Bank. The disclosed rates represent the average rate on jeonse loans backed by Korea Housing Finance Corporation guarantees issued during the month.

The broader trend reflects a strategic shift under pressure to manage total household lending volumes. Commercial banks have tilted their portfolios toward mortgage loans over jeonse and monthly-rent lending, while internet banks have capitalized on the spillover by absorbing relatively stable jeonse loan demand — a move that also serves their asset-quality management goals.

"Jeonse and monthly-rent loans are somewhat easier to manage from an asset-quality standpoint than ordinary unsecured loans," a banking industry official said. "A bank facing asset-quality improvement targets would likely have crafted a portfolio strategy around picking up the demand flowing out of commercial banks and growing its jeonse loan book."