Easing Interest Rate Disparities for Low to Medium Credit Borrowers... Inclusive Finance Incentives for Mutual Finance Institutions

FSC Holds First Meeting of the Financial Industry Subcommittee under the Inclusive Finance Strategy Task Force

Financial authorities are taking steps to expand funding for individuals with low to medium credit ratings and to address interest rate disparities, aiming to promote inclusive finance. Various incentive measures will also be introduced to strengthen the role of mutual finance and other secondary financial institutions in inclusive finance.

On July 7, the Financial Services Commission announced that it held the first meeting of the Financial Industry Subcommittee under the Inclusive Finance Strategy Task Force and discussed these topics. The Inclusive Finance Strategy Task Force consists of four subcommittees, each tasked with identifying and discussing relevant issues. At the Financial Industry Subcommittee meeting held that day, 12 experts, including officials from the FSC and Professor Nam Jaehyun of Kookmin University, attended.

The Financial Industry Subcommittee will operate subgroups focusing on four main topics: ▲expanding funding for low to medium credit borrowers and addressing interest rate disparities ▲rationalizing prudential regulations for financial companies ▲improving the mutual finance system ▲establishing a sustainable evaluation system for inclusive finance.

To address interest rate disparities, the subcommittee will implement the measures to boost mid-rate lending announced in April and also review plans to lower interest rates for low to medium credit borrowers. As of the end of March, the average interest rate for unsecured loans to medium credit borrowers stood at 7.9%, with the average rate across sectors ranging from 5.8% to 14.5%, indicating a significant gap. In response, the subcommittee plans to develop a variety of new programs, including cooperation between banks and secondary financial institutions, to help narrow these disparities.

Additionally, to expand funding for low to medium credit borrowers, the subcommittee will review the need for system improvements related to sector-specific products, such as the Sae-Hyup Hope Loan from banks and loans for low to medium credit borrowers offered by internet-only banks. In the insurance and card sectors, the subcommittee will discuss support initiatives that directly impact people's daily lives.

To further promote inclusive finance, the subcommittee will also devise ways to rationalize prudential regulations across all sectors. It will broadly review improvements to risk-weighting (coefficient) standards, asset quality classification, and loan loss provision requirements to facilitate debt restructuring. The subcommittee will also expedite follow-up measures on already announced policy improvements, such as separating private mid-rate loans in savings banks, card firms, and capital companies into two categories and expanding regulatory incentives.

In particular, for the mutual finance sector, a separate subgroup will be formed to discuss ways to strengthen its role in inclusive finance. The subgroup will review measures such as: ▲profitability and liquidity support at the central association level for exemplary inclusive finance cooperatives ▲providing regulatory incentives such as inclusive finance-related loan-to-deposit ratios and updating relevant regulations ▲reflecting inclusive finance performance in management evaluations and awards.

Furthermore, the evaluation system for financial companies will be restructured. In coordination with the comprehensive evaluation of inclusive finance by the Public Welfare Subcommittee and the discussions on embedding inclusive finance into governance by the General Affairs Subcommittee, inclusive finance will be integrated into the systems of financial institutions, and measures will be prepared to provide various incentives to outstanding inclusive finance institutions.

The Financial Industry Subcommittee plans to develop detailed measures through further subgroup discussions and will announce them sequentially at the 'Inclusive Financial Transformation' meetings.

This content was produced with the assistance of AI translation services.