Major Banks Stepping into Riskier Loan Market

Major banks are making inroads into the riskier consumer financing market to provide loans to those who have difficulty in getting loans due to credit problems, drawing mixed reactions from consumers and analysts.

Banks hope the new business will provide a breakthrough to their sluggish loan business, but some analysts worry their exposure to riskier loans will cause serious trouble, if the country suffers a U.S.-like credit squeeze.

Kookmin Bank, Woori Bank and the Industrial Bank of Korea have announced plans to advance into the market this year. Hana Bank has already begun providing services through its subprime loan unit, Hana Capital.

SC First Bank acquired Yeahreum Merchant Savings Bank based in Bundang, south of Seoul, in January to tap the high risk, high return business. Reports said it is seeking to acquire another small-sized savings bank.

Amid falling interest margins and sluggish demand for home-backed loans, banks are increasing un-collateralized commercial loans to salaried workers and the self-employed. The commercial loan market is growing at a faster pace as banks have eased lending rules for those with stable income sources and raised the ceiling for the amount in loans they can receive.

``It is risky to do the subprime business, but it is also attractive at the same time,'' Kookmin Bank CEO Kang Chung-won said. ``We are considering acquiring an existing consumer financing firm or setting up our own unit to provide the service this year.

Industrial Bank of Korea CEO Yun Yong-ro said on April 2 that the bank will provide loans to employees of small- and mid-sized firms who are unable to borrow from major banks due to bad credit records.

In February, Hana Bank launched un-collateralized commercial loans for those with credit problems through its subsidiary Hana Capital. The loans, carrying annual interest rates of 13 to 37 percent, are offered only through the Internet. It plans to launch a full line-up of commercial loans soon after gathering more information about the market.

According to the Financial Supervisory Service, the combined outstanding loans at 59 consumer financing firms with more than 7 billion won in assets stood at 3.4 trillion won as of the end of last year, up 51 percent, or 1.16 trillion won, from a year ago.

The firms has enjoyed an upswing in outstanding loans as the government enforced tougher rules to make it more difficult for homebuyers to borrow from banks in a bid to stabilize the housing market.

http://www.koreatimes.co.kr/www/news/nation/2008/04/123_21992.html

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Major Banks Stepping into Riskier Loan Market