New borrowers at internet banks drop 70% in 4 years amid inclusive finance push

The number of mid-to-low credit borrowers taking out their first personal loan — or returning after a gap — at internet banks has fallen sharply over the past four years. Financial authorities have been gradually raising the target share of loans to such borrowers, but new borrower inflows have slowed and the effect of reducing existing borrowers' debt burden has been limited, according to a new analysis.

A report published Thursday by Toss Insight, titled "Analysis of the Mid-to-Low Credit Loan Market and Measures to Enhance Inclusive Finance," found that the number of mid-to-low credit borrowers entering or re-entering the internet bank personal loan market fell from 112,000 in the fourth quarter of 2021 to between 34,000 and 40,000 per quarter in 2025 — a drop of as much as 70% from the peak. First-time entrants are borrowers with no prior history of internet bank personal loans; re-entrants are those who had used such loans before and returned.

The entry of high-rate borrowers into internet banks has also slowed. Among mid-to-low credit borrowers who had held personal loans at high-rate lenders such as savings banks and credit card companies in the previous quarter, the share who opened a new internet bank personal loan account fell from 0.8% in the first quarter of 2022 to between 0.2% and 0.3% recently.

The debt-reduction effect of new internet bank loans was also limited. Among borrowers who took out a new internet bank loan while already carrying a personal loan at another financial institution, roughly half — 47% — saw their existing loan balance remain unchanged or increase. By contrast, only 20.2% saw their existing debt fall by more than half the amount of the new loan.

However, a rate-reduction effect did appear among mid-to-low credit borrowers whose personal loan accounts at other institutions were closed. Borrowers who moved to internet banks from savings banks, credit card companies or installment finance firms saw their loan interest rates fall by an average of more than 5 percentage points.

The broader debt-relief impact of internet banks' loan expansion was also unclear. Researchers analyzed borrowers newly included in the mid-to-low credit loan expansion program and found that while internet bank loan usage increased, total loan balances were estimated to have grown by an average of 401,000 won ($299) more than those of a comparable group with similar credit scores.

Financial authorities plan to raise the target share of new personal loans to mid-to-low credit borrowers at internet banks from 30% last year to 32% this year, 34% in 2027 and 35% in 2028. The report said that simply raising the target share while new borrower inflows remain sluggish would likely push banks to extend more credit to borrowers with higher credit risk.

The report's authors, researchers Yoo Jae-won and Noh Yu-cheol, said internet banks should receive greater credit for loans to new borrowers or for cases where existing high-rate debt is actually repaid, rather than for additional loans to existing customers.

The report added that guarantee and loss-sharing mechanisms should be established to reduce the risk of defaults from expanded lending to low-credit borrowers, and that loan supply targets should be adjusted flexibly in response to economic and interest rate conditions. It also said internet banks should bear a share of potential losses to maintain accountability in their loan screening processes.