FSC targets rate cut for low earners

The Financial Services Commission (FSC) will devise an additional set of measures this month to provide more loans for the public, the agency’s chairman, Kim Seok-dong, said yesterday.

“The role of the FSC is to expand the interest rate spectrum of financial institutions so ordinary people can take out loans based on their credit ratings,” Kim said after attending a breakfast meeting with financial executives hosted by the Korea Chamber of Commerce and Industry.

“Our other role is to hammer out government-initiated lending programs for people who have a hard time borrowing money from financial institutions. Additional measures will be mapped out to ensure existing loan programs will be within the reach of more people.”

Currently, financial authorities run five microfinance loan programs as part of the government-oriented lending programs ranging from Smile Microcredit loans to Sunshine loans for those with low credit ratings and low incomes.

Kim’s remarks came a day after the Financial Supervisory Service (FSS)?said it will reclassify five million people with low credit ratings into 10 new subprime levels. The measure aims to reduce interest rates for those in the upper three subprime levels in October.

People with poor credit ratings have to deal with interest rates of between 25 percent and 39 percent when they borrow money from financial institutions, the FSS said. The new index will help debtors stay afloat, while also shoring up lenders’ financial soundness by letting them selectively grant loans to those most able to repay their debts among this group, it added.

Regarding the pre-workout programs designed to help delinquent mortgage holders by lowering the interest rates on their loans and delaying their repayments, Kim said banks can choose to sign up for this program but that it is not mandatory.

“Banks run programs to rescue multiple-loan takers with records of repeat short-term delinquencies,” Kim said. “But they also need to focus on helping single-loan takers pay back their debts in installments.”

Concerning the investor-state dispute (ISD) settlement case of U.S. private equity fund Lone Star, which has been slapped with a large withholding tax bill for its recent sale of Korea Exchange Bank (KEB), Kim said he was confident Seoul would win the case.

“We thoroughly examined the legal aspects of Lone Star’s handover of KEB to Hana Financial Group when the two sides sealed the deal,” Kim said. “I’m confident [of Seoul’s win] because the sale process was transparent.”

Lone Star in January sold its 51 percent stake in KEB to Hana Financial Group for about 4 trillion won ($3.5 billion). The National Tax Service subsequently imposed a 10 percent withholding tax amounting to 391.5 billion won on the proceeds from the sale.

The U.S. equity firm filed a complaint in May arguing that it should be exempted from the tax as KEB was sold by its subsidiary based in Belgium, a country with which Korea has a double-taxation avoidance deal.

By Kim Mi-ju [mijukim@joongang.co.kr]