The government is set to expand loan availability for low-to-medium credit borrowers and address the issue of interest rate disparities. The aim is to reduce the 'interest rate stratification' that results in significantly different rates across sectors and to adjust soundness regulations and evaluation systems to facilitate funding for these borrowers.
On July 7, the Financial Services Commission (FSC) held the first meeting of the 'Inclusive Finance Strategy Promotion Group' at the Bank Hall in Jung-gu, Seoul, where they discussed measures to increase funding for low-to-medium credit borrowers and resolve interest rate stratification.
The Financial Industry Division is led by Nam Jae-hyun, a professor at Kookmin University, and includes 12 private sector experts from academia, research institutions, civic groups, and financial companies. The division will focus on four main topics: expanding funding for low-to-medium credit borrowers and resolving interest rate stratification, rationalizing financial company soundness regulations, improving mutual finance systems, and establishing a sustainable inclusive finance evaluation system. Each sub-group will include officials from the FSC, the Financial Supervisory Service, financial companies, and industry associations to discuss detailed regulatory improvements.
A key task is to address the interest rate stratification for loans to low-to-medium credit borrowers. According to the FSC, the average interest rate for credit loans to medium credit borrowers was 7.9% as of the end of March this year, with rates varying from a low of 5.8% to a high of 14.5% across sectors. The average interest rate for the bottom 20% of borrowers reached 13.4%.
The FSC attributes this interest rate stratification to high loan costs in the second financial sector and a lack of credit evaluation capabilities. In response, the commission plans to review new support measures, including collaboration programs between banks and the second financial sector, alongside the mid-interest loan activation plan announced in April.
The need for regulatory improvements for inclusive finance products operated by each sector will also be examined, including the New Hope Seed and loans for low-to-medium credit borrowers from internet-only banks. Discussions will also cover support measures closely related to the daily lives of citizens in the insurance and card sectors.
The FSC will also improve soundness regulations for financial companies. To encourage the expansion of inclusive finance, the commission will review the need for improvements across various regulations, including risk weights, asset soundness classification standards for debt restructuring, and provisions for loan loss reserves.
For mutual finance, discussions will include profitability and liquidity support measures for outstanding inclusive finance cooperatives at the central association level, regulatory incentives related to inclusive finance (such as loan-to-deposit ratios), and plans to reflect inclusive finance performance in management evaluations and rewards.
Additionally, to promote sustainable inclusive finance in the financial sector, the evaluation system will be restructured. The sub-groups will collaborate on integrating inclusive finance into the financial companies' systems and exploring various incentives for outstanding inclusive finance institutions.
The FSC stated, "After discussions in the sub-groups, we will prepare regulatory improvement proposals and announce them sequentially through the Inclusive Finance Transformation Meeting. For tasks requiring legislation and budget support, we plan to consult with the National Assembly to advance them."
* This article has been translated by AI.
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