[Column] To Increase Corporate Loans by Easing RWA Regulations

Easing RWA Reduces Capital Management Burden
Regulatory Easing Expected to Boost Corporate Lending
Need to Structurally Increase Corporate Loan Share
Temporary Expansion Is Meaningless

"Commercial banks may be able to temporarily increase corporate loans, but it will be difficult for them to carry loans like policy banks do."

The Financial Services Commission is actively considering easing the Risk-Weighted Assets (RWA) regulations. This means they plan to relax RWA regulations to encourage expanded funding supply to corporations. This is to help ensure smooth financial support for companies struggling due to factors such as mutual tariffs and sharp exchange rate fluctuations.

There is a subtle difference in perspective between commercial banks and policy banks regarding the easing of RWA regulations. A policy bank official whom the reporter met said, "We have the mindset of supporting companies by accepting losses, but commercial banks have a different stance," adding, "Corporate lending will probably not be as extensive as that of policy banks."

RWA refers to the standard requiring banks to hold more capital depending on the risk level when executing loans or holding assets. From the bank's perspective, holding assets with high RWA weights inevitably lowers the BIS (Bank for International Settlements) capital adequacy ratio.

For example, government bonds, which have almost no default risk, carry no weight. Mortgage loans secured by apartments are assigned a 35% weight. Loans to small and medium-sized enterprises (SMEs) have a higher weight, and unsecured loans carry a 100% weight. From the bank's standpoint, even if they want to actively increase corporate loans, there are limits due to soundness management. This is why commercial banks tend to focus on large corporations when engaging in corporate lending.

Even if commercial banks aggressively expand corporate loans, if the companies face difficulties, they have no choice but to raise the risk premium, and naturally, companies will turn back to policy banks.

In fact, a commercial bank official said that while easing RWA regulations greatly helps soundness management, there are "limits" to aggressively expanding corporate loans in a clearly recessionary environment. The official emphasized that temporarily increasing corporate loans through regulatory easing and structurally expanding corporate lending are different issues.

When the government tightens mortgage loan regulations, commercial banks usually increase corporate loans to expand interest income. However, looking at the market share (MS) of SME loans, policy banks have maintained a 20% range annually. This shows that commercial banks are only 'temporarily' increasing corporate loans and fundamentally have a different attitude toward corporate credit.

Currently, the Financial Services Commission is collecting opinions from banks regarding RWA easing. While it is promising that policies will play their role in expanding financial support for companies amid domestic and international challenges, it should not remain merely a regulatory relaxation. It is necessary to carefully design policies so that RWA easing does not become a means to 'temporarily' increase corporate loans.