Financial Authorities Abolish Pre-Disclosure Requirement for Private Mid-Interest Loans... Reasonable Reduction of Interest Rate Caps

Notice of Legislative Proposal for Amendments to the Mutual Savings Bank Business, Specialized Credit Finance Business, and Mutual Finance Business Supervision Regulations

Savings Banks' Mid-Interest Business Loans Supply Performance Weighted at 130% of Loans within Operating Area
Mandatory Annual 20% Loan Provisions for Savings Banks and Specialized Credit Finance Sectors Abolished Following Legal Maximum Interest Rate Reduction

[Asia Economy Reporter Lee Kwang-ho] Financial authorities have abolished the prior disclosure requirement for private mid-interest loans and are rationally lowering the interest rate cap. Additionally, the supply performance of mid-interest business loans by savings banks will be weighted at 130% of the loan amount within their operating areas.

The Financial Services Commission announced on the 17th that, as a follow-up to the 'Mid-Interest Loan System Improvement Plan' announced on the 26th of last month, it will publicly notify the amendment of the supervisory regulations for mutual savings banks, specialized credit finance companies, and mutual finance companies reflecting these contents.

First, by abolishing the prior product disclosure requirement, incentives will be provided for all mid-interest loans supplied to the middle- and low-credit tiers, and these will be aggregated and disclosed.

The new requirement applies to all unsecured credit loans executed for borrowers in the lower 50% credit score bracket (grade 4 or below) that meet the interest rate cap requirements (banks 6.5%, mutual finance 8.5%, card companies 11.0%, capital companies 14.0%, savings banks 16.0%).

Furthermore, the supply performance of mid-interest business loans by savings banks will be weighted at 130% of the loan amount within their operating areas.

Savings banks are obligated to maintain a certain ratio (30-50%) or more of credit extensions to individuals and small and medium enterprises within their operating areas relative to their total credit extensions.

In addition, following the reduction of the legal maximum interest rate (from 24% to 20%), the obligation to additionally reserve provisions for high-interest loans with an annual rate of 20% or more in savings banks and specialized credit finance sectors (30% for specialized credit finance, 50% for savings banks) will be abolished.

The financial authorities plan to complete the amendment of supervisory regulations by the third quarter of this year after public notification, consultations with related ministries, and reviews by the Regulatory Reform Committee and the Ministry of Government Legislation, with implementation starting in 2022.