FSC sets new ways for SMEs to get bank loans

In a continued effort to bolster small business’ access to liquidity, Korea’s top regulator announced yesterday a series of measures to improve self-employed people’s ability to get bank loans.

And after a law was revised to give government regulators the power to set credit card transaction fees applied to small businesses, regulators said they would try to possibly suggest another revision in alignment “with free market principles.”

After launching measures on Feb. 14 to limit banks’ widespread practice of requiring joint surety when small and midsized enterprises apply for loans, the Financial Services Commission Chairman Kim Seok-dong presented follow-up measures to increase access to loans for well-performing self-owned businesses.

“Although most self-owned businesses get their financing through routes such as bank loans, financial companies continue to focus on SMEs’ size and use criteria such as revenue or collateral when evaluating them,” he said.

In a survey conducted by IBK Economic Research Institute last Nov., a whopping 95.5 percent of 3,420 responding SMEs said they relied on bank loans for financing.

Only 4.7 percent said they issued corporate bonds.

To get more credit to SMEs, regulators first plan to set conditions under which loan officers can escape blame for a loan default of an SME they approved.

Banks have internal rules that judge whether a loan officer did due diligence on a loan application and are not at fault when an SME defaults on a loan.

But the rules are vague, complex and different for every bank, discouraging loan officers from extending credit to SMEs, according to the FSC.

The FSC will also empower Korea Enterprise Data, a credit rating agency that specializes in SMEs, to have greater access to banks’ data, reform the rules on which banks judge the value of real estate as collateral and create a financial data system accessible by SMEs.

The FSC chief also discussed the revision to the Specialized Credit Financial Business Act passed by the assembly late Monday, which empowers the FSC to determine credit card companies’ transaction fees for small businesses.

He said that whether the new law is applied or is revised, he will put market principles first.

“We have to discuss the matter with related agencies and review possible legal disputes, but my position is never to harm the basic principles of market economy,” Kim said.

“But we respect the spirit of the legislation, which is to give competitive [card] transaction rates to small businesses, and we will try to do that in a way that doesn’t harm market principles.”

Credit card company officials have expressed distress at the news of the law’s passage.

By Lee Jung-yoon [joyce@joongang.co.kr]