KakaoBank business loans 60% mid-to-low credit borrowers; collateral key to containing bad debt

KakaoBank has surpassed 4 trillion won (about $3 billion) in individual business loan balance four years after launching its individual business banking service. Three out of five loan customers are mid-to-low credit borrowers, aggressively expanding the scale of inclusive finance. Behind this lies a credit risk hedging strategy that fundamentally blocks loss risk by tying about 70% of loan assets to guarantees and property collateral. While rival banks have raised lending thresholds for small business owners amid a surge in delinquency rates, the internet-only bank has avoided damage to asset soundness by restructuring its portfolio around collateral and guarantees instead of pure unsecured credit.

According to KakaoBank on Nov. 2, the individual business loan balance exceeded 4 trillion won (about $3 billion) as of the end of September, with cumulative supply reaching about 7 trillion won (about $5.2 billion). This is the result achieved since the launch of individual business banking in November 2022, and monthly active users (MAU) reached 1.2 million as of the end of last month. The most notable point is that about 60% of all loan customers are mid-to-low credit borrowers.

Rapidly increasing credit to vulnerable borrowers at a time when delinquency rates for self-employed business owners are soaring across the banking sector directly leads to higher loan-loss provision burdens and deteriorating asset soundness. In fact, the delinquency rate on SME and small business loans at the five largest commercial banks hit a nine-and-a-half-year high at the end of the third quarter, prompting them to reduce new lending.

The key to KakaoBank's ability to avoid this crisis and defend its soundness lies in its loan portfolio composed of guarantee-backed loans and property-backed loans. KakaoBank quickly shifted its credit structure, taking a lesson from the delinquency surge experienced by competitors such as Toss Bank, which initially expanded business credit mainly through unsecured loans. It became the first internet-only bank to sign comprehensive guarantee agreements with regional credit guarantee foundations in all 17 cities and provinces, and in October last year launched an individual business property-backed loan with a limit of up to 1 billion won (about $738,000). As a result, the share of collateralized credit, including guarantees and property, in total business loans has risen to about 70%.

This structure acts as a shield that minimizes the bank's actual risk exposure even when a borrower's own creditworthiness is somewhat low. For guarantee-backed loans, even if a borrower fails to repay principal and interest and delinquency occurs, the regional credit guarantee foundation, a public guarantee institution, subrogates 85% to 100% of the payment, so the final loss rate is extremely limited. Individual business property-backed loans also secure assets that have undergone loan-to-value (LTV) and appraisal processes, avoiding the risk of unrecoverable losses even if business performance is poor.

The interest rate structure also clearly reflects this risk diversification. The average executed rate on KakaoBank's individual business property-backed loans is 3.74% per annum, with the lowest rate around 3.04% per annum. Regional credit guarantee foundation-backed loans are also offered at low rates in the upper 3% range. In contrast, pure unsecured loans without collateral or guarantees are offered at rates up to the upper 7% range per annum, reflecting the borrower's default risk premium. As a result, KakaoBank achieved 4 trillion won (about $3 billion) in quantitative growth by leveraging low-risk products backed by local government and guarantee institution finances, including 28 billion won (about $21 million) in guarantee fee support and 24 billion won (about $18 million) in interest-supported guarantee loans.

Some analysts say that a model that transfers credit risk externally cannot be a perfect shield. If the self-employment downturn continues and subrogation requests surge, there is a risk that policy institutions' guarantee capacity could be exhausted or their screening thresholds could rise sharply. Since vulnerable borrowers inherently account for 60%, it is difficult to fully offset the structural limitation of borrowers' underlying cash flow collapsing due to delayed domestic demand recovery by relying solely on collateral.

The future path of full-scale credit expansion is expected to be a test of soundness defense. KakaoBank will launch a refinancing product this month that allows borrowers to move individual business loans from other financial institutions to its property-backed loans, and next year it will introduce joint loans with Busan Bank for SMEs, expanding its corporate finance business.

The key point to watch is whether it can prove bad-debt control even after the scope of credit handling widens. Defending against the risk of falling market prices for collateralized property and preemptively blocking delinquency trends among vulnerable self-employed business owners pushed to the limit through its own alternative credit scoring system (CSS) will be the key indicators determining the trajectory of future credit growth.

(Dollar figures are approximate, converted automatically at 1,000 won = $0.738, the rate on Nov. 8, 2026.)

※ This article is an AI translation of the Korean original published by Korea Credit News; it was checked by automated quality guards and published by the English edition desk.