'Industry Proposal Accepted to Allow CEO Approval'
[Asia Economy Reporters Kim Hyo-jin and Kim Min-young] Financial authorities have introduced measures to ease the loan procedures for ineligible borrowers at savings banks. This move is interpreted as a response to concerns that vulnerable groups such as low-income households could be pushed into loan blind spots amid the tightening of household loans across the banking sector.
According to financial authorities and the savings bank industry on the 20th, the Financial Services Commission recently allowed the CEO of a savings bank to approve loans to ineligible borrowers, such as those with delinquent loans. While loans to ineligible borrowers are generally prohibited, they may be granted if certain conditions, such as efforts to repay principal and interest, are met. In such cases, the approval authority is the board of directors, requiring the board to convene each time such matters arise.
Savings banks are required by the Governance Act to appoint outside directors, which limits the frequency of board meetings. Consequently, decision-making can be delayed, potentially disrupting timely financial supply to low-income individuals. For these reasons, savings banks requested that approval authority be delegated to the CEO.
The financial authorities accepted the proposal, maintaining the board of directors as the principal approval body but allowing the CEO to approve loans if sufficient collateral is secured and pre-established criteria set by the board are met. However, to prevent reckless lending and deterioration of soundness, the authorities mandated that loan-related matters be reported to the board retrospectively.
Additionally, the financial authorities instructed that the soundness trends of ineligible loans be reported at the next board meeting, and procedures be established to suspend loan handling or revise approval criteria if soundness worsens or related loans surge.
The financial authorities are also set to finalize and announce soon an incentive plan related to mandatory loan ratio regulations within the business area for savings banks that provide many mid-interest rate loans. Under the Mutual Savings Banks Act Enforcement Decree, savings banks must meet a mandatory loan ratio requiring a certain percentage of total loans to be made within the region where their headquarters are located. The plan is to apply a 150% weighting to mid-interest rate loans when calculating this ratio.
This move is closely related to concerns that the surge in household loans due to 'Yeongkkeul' (leveraging all assets) and 'Debt Investment' has led financial authorities to tighten overall lending, potentially making it harder for low-income groups to secure funds. There is a recognized need to ease the financial constraints on middle- and low-credit borrowers, who are already marginalized in bank lending.
Voices Calling to 'Ease Financial Constraints for Low-Income Groups'
Concerns Raised Over Savings Banks' Soundness
According to data received by People Power Party lawmaker Yoon Doo-hyun from the credit information company NICE Information Service, as of the end of last month, 48% (3,108,320 people) of customers who took out unsecured loans from banks had a credit rating of grade 1. This represents an 8 percentage point increase compared to the end of September 2016.
Conversely, the proportion of unsecured loans to middle- and low-credit borrowers has significantly decreased. As of the end of last month, 916,544 middle-credit borrowers (grades 4?6) accounted for only 14% of the total. This is a 4 percentage point drop from 18% four years ago. The loan proportion for low-credit borrowers (grades 7?10) also fell by 2 percentage points to 8% during the same period.
Separately from these concerns, voices remain about the soundness of loans to middle- and low-credit borrowers. According to data on 'Additional Loan Status of Borrowers of Five Major Low-Income Financial Products' received by Democratic Party lawmaker Min Hyung-bae from the Korea Inclusive Finance Agency and KCB (Korea Credit Bureau), 64% of the total 1.85 million debtors were found to have taken out at least one additional loan from secondary financial institutions, including savings banks, after obtaining low-income financial products.
Lawmaker Min urged, "Special measures for debt adjustment and welfare support must be introduced to prevent low-income individuals from using additional high-interest loan institutions."
As of the end of June, the total loan volume of savings banks was 69.2943 trillion won, a 6.6% (4.3 trillion won) increase from 65 trillion won at the end of last year. Meanwhile, the loan loss provision ratio, which absorbs loss-absorbing capacity, was 107.7% at the end of June, down 3.7 percentage points from 111.4% at the end of June last year and 5.3 percentage points from 113% at the end of last year.
Democratic Party lawmaker Yoo Dong-soo pointed out these issues, emphasizing, "Savings banks should proactively increase their loss-absorbing capacity through additional loan loss provisions."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
