FSC plans to support loans for those with subpar credit

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FSC plans to support loans for those with subpar credit

The Financial Services Commission (FSC) will increase the availability of loans for borrowers with mediocre credit scores by mobilizing 1 trillion won ($850 million) in guarantee insurance for commercial, savings and new web-based banks from the second half of this year, the regulator announced Wednesday.

According to the FSC’s annual plan for 2016, unveiled at the first meeting of the Financial Development and Review Committee on Wednesday, the commission will support expansion of midrange loans for consumers with subpar credit scores, a group traditionally ignored by commercial banks because of the default risk.

Borrowers whose credit scores are between levels one and four, out of 10, are eligible for loans with interest rates less than five percent.

But for borrowers with credit below level four, one of the only options for a loan is to get one from second-tier financial institutions known as capital firms, which often charge interest rates of around 20 percent.

The new loans available for these borrowers will have interest rates of around 10 percent, the FSC said.

“Despite demand for loans among consumers with midlevel credit, the supply of credit with midrange interest rates falls short,” said Kim Yong-beom, secretary general of the FSC. “As the market for midrange loans is expanding, there needs to be policies to accelerate the market’s growth.”

Seoul Guarantee Insurance will provide guarantees for 1 trillion won worth of loans for the borrower group. Commercial and savings banks will be supported with 500 billion won each.

Of these midrange loans, those with mediocre credit can receive up to 20 million won from a commercial bank and up to 10 million won from a savings bank, the FSC said.

New web-based banks starting operations in the second half of the year will also offer 10 percent loans to relevant consumers. The two Internet-based banks approved for operation by the commission - Kakao Bank and K-Bank - are expected to provide up to 1.4 trillion won in loans at rates of around 10 percent over the next three years, the FSC said.

The commission also said it will approve two or three more Internet banks later this year.

Besides supplying the new loans, the FSC announced its plans to install a so-called Finance Zone in the Culture Creation and Convergence Belt, which will help finance start-ups, and to seek the status of a developed nation in MSCI’s equity indices by introducing a single, so-called omnibus account for foreigners trading local stocks, which functions as a simplified identification system. Korea was taken off the short list of MSCI candidates in 2014.

The recognition of developed nation status is expected to bring larger opportunities, including access to bigger global funds, and improved market stability.

BY SONG SU-HYUN [song.suhyun@joongang.co.kr]

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