Resolution Passed at Monetary Policy Board Meeting on July 24
To Be Implemented Next Year, Measures to Prevent Borrowers from Bearing Additional Interest Costs
Considering Enhanced Joint Inspections and Disclosure of Violations
The Bank of Korea will introduce differentiated interest rates for its Bank Intermediated Lending Support Program starting next year. Banks found to have committed serious regulatory violations will face a penalty interest rate of up to an additional 1 percentage point. The central bank explained that this measure is intended to encourage financial institutions to comply with regulations and to ensure the effectiveness of interest rate sanctions. The Bank Intermediated Lending Support Program is a system in which the Bank of Korea lends funds to commercial banks at low interest rates, thereby encouraging these funds to be extended as loans to eligible small and medium-sized enterprises.
According to the minutes of the Monetary Policy Board released on August 12, the board approved the “Amendment to the Bank of Korea’s Lending Regulations for Financial Institutions” at its non-monetary policy meeting on July 24, reflecting these changes. The amendment stipulates that banks that intentionally or habitually violate the rules of the lending support program will be subject to additional interest rate penalties. Starting next year, financial institutions that repeatedly submit falsified or forged documents related to the program will face a penalty interest rate of up to 1 percentage point for a maximum of six months. A Bank of Korea official stated, “The main objective of the differentiated interest rate system is to provide a stronger sanction mechanism for cases of serious negligence by banks, thereby promoting institutional improvements at the bank level and preventing risks in advance.”
Members of the Monetary Policy Board agreed with the plan to differentiate the lending support program’s interest rates and urged that efforts be made to ensure its effectiveness during implementation. They emphasized that the differentiated interest rates should not be passed on to borrowers in the form of higher interest burdens. In response, a Bank of Korea official said, “When implementing differentiated interest rates, we will consider various measures to minimize the transfer of additional interest burdens to borrowers, including strengthening joint inspections and disclosing violations.”
Meanwhile, on the same day, the Bank of Korea extended the deadline for the initial 9 trillion won tranche of the temporary special support program for small and medium-sized enterprises from the end of July 2025 to the end of January next year, a six-month extension. This decision was made out of a continued need to support vulnerable sectors such as low-credit self-employed individuals and regional SMEs, given the delayed recovery in business conditions and increased external uncertainties. Previously, at its plenary meeting on July 18 last year, the Monetary Policy Board extended the operating period of the initial 9 trillion won tranche of the SME temporary special support program by one year, from the end of July 2024 to the end of July 2025, in consideration of persistent difficulties in operating conditions, including rising delinquency rates and increased closures, especially among vulnerable and small-scale SMEs.
As a result, the Bank of Korea will operate a total of 14 trillion won in lending support at an annual interest rate of 1.0% through January next year. On this day, board members expressed the expectation that, with this extension, the operating period for the 9 trillion won tranche will now align with the 5 trillion won tranche added in January 2025, thereby improving the efficiency of the program’s operation.
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