FSC wants banks to give more loans
President Park Geun-hye, at an earlier ministerial meeting on economic affairs, had criticized the financial industry for being selfish and complacent rather than contributing to the government’s efforts to bolster economic recovery.
Many analysts have said the president means that financial institutions have been less active than she would like in supporting her flagship “creative economy” initiative, as many of them are cautious about increasing loans to vulnerable households or businesses.
Kim Gwang-du, known as the president’s economic tutor, said at a forum last month that the government has created a 6 trillion won ($5.8 billion) fund for start-ups, but only 1.2 trillion won has been put into the market.
Park wants financial institutions to support the government’s latest deregulation plan for the real estate market, including the revised debt-to-income (DTI) and loan-to-value (LTV) ratios, and the plan to increase loans for technology start-ups, the analysts say.
Some even suggested Park might soon overhaul the financial industry.
“The financial industry should move together with the government to help the economy restore vitality,” Shin said at the meeting. “Financial institutions will have to discover new profit sources by providing funds for creative start-ups.”
Shin reportedly asked the vice presidents to provide loans under the revised LTV and DTI rules.
Although the LTV ratio has been raised to a maximum of 70 percent and the DTI to 60 percent this month, consumers have been complaining after being denied loans because many the banks still offer different rates.
The chairman also called for bolder action by the banks to support start-ups.
It is widely agreed that financial institutions are too conservative about issuing loans to small businesses.
According to the Bank of Korea, small and medium-size companies’ credit loans accounted for about 50 percent of their total loans including collateral and guaranteed loans in 2008, but the percentage fell to 42 percent last year. This indicates that it has become more difficult for smaller businesses to get loans from financial institutions based on their credit, even though the government says it will provide more financial support.
The FSC is preparing measures that will encourage banks to lend more to small businesses. One step is to exempt financial institutions that give loans to start-ups that are not paid back.
After the meeting, Shin told reporters that the executives of the nine banks said they are being passive about increasing loans because of the authority’s recent punishment of financial institutions.
There has been much tension between the FSC and the industry as the authority has imposed stricter and more frequent punishment on financial institutions and their employees, especially for issuing loans unfairly or illegally.
“If it’s not serious negligence, it is desirable to let the institutions handle incidents caused by individual employees,” Shin said.
Along with putting more pressure on the financial sector, the government plans to spur efforts to make the creative economy initiative successful in the next two to three years by holding bigger meetings on the issue.
According to the Ministry of Strategy and Finance, the government will hold a “creative economy strategy meeting” next month in order to discuss how to use the creative economy budget more efficiently.
“The Ministry of Science, ICT and Future Planning is currently working on measures to achieve tangible success with the initiative in the next two to three years, and the Finance Ministry will fully support the measures,” an official at the ministry said.
The Finance Ministry also said it would increase the budget for the creative economy initiative next year up from the current 6.6 trillion won this year.
BY SONG SU-HYUN [email@example.com]