The Financial Services Commission plans to comprehensively reflect the effects of interest rate cuts, improved financial access, and corporate governance in evaluating financial companies' inclusive finance performance. It will also expand credit evaluation infrastructure that can more precisely assess the repayment capacity of medium- and low-credit borrowers (people who take out loans) and pursue ways to lower the expense structure so financial companies can supply mid-rate loans.
The Financial Services Commission (FSC) said on the 7th that it held a kickoff meeting of the financial industry subcommittee of the "inclusive finance strategy task force" at the Bankers Association Building in Jung-gu, Seoul, and discussed these measures.
The financial industry subcommittee will focus on tasks such as expanding supply to medium- and low-credit borrowers and easing the interest rate cliff, rationalizing prudential regulations for financial companies, improving the mutual finance institutions system, and building a sustainable inclusive finance evaluation framework.
The subcommittee decided to prepare measures to ease the "interest rate cliff" in the loan market for medium- and low-credit borrowers. According to the Financial Services Commission (FSC), as of the end of March this year, the average interest rate on unsecured loans for mid-credit borrowers was 7.9% per year. By sector, rates ranged from a low of 5.8% to a high of 14.5%. The average rate for borrowers in the bottom 20% reached 13.4% per year. The FSC analyzed that this is because a structure still remains in which rates rise sharply when borrowers (people who take out loans) who cannot pass the bank lending threshold move to the secondary financial sector.
The financial authorities decided to review interest rate reduction measures for medium- and low-credit borrowers, including collaboration models between banks and the secondary financial sector. To that end, they will expand credit evaluation infrastructure that can more precisely assess the repayment capacity of medium- and low-credit borrowers and, at the same time, prepare measures to lower the expense structure so financial companies can supply loans at reasonable rates.
Prudential regulation is also a target for adjustment. The Financial Services Commission (FSC) said it will rationalize regulations that hinder the expansion of inclusive finance. It plans to broadly review risk weights on loans to medium- and low-credit borrowers, asset soundness classification standards related to debt adjustment, and provisions for loan loss reserves.
It will also push to redefine the role of mutual finance institutions. The Financial Services Commission (FSC) will form a separate sub-subcommittee for mutual finance institutions to discuss central-level support for profitability and liquidity for excellent inclusive finance cooperatives, regulatory incentives such as loan-to-deposit ratios, and ways to reflect inclusive finance performance in management evaluations.
An overhaul of the evaluation framework is also under review. The Financial Services Commission (FSC) will embed inclusive finance into financial companies' systems and pursue ways to grant incentives to top-performing institutions. When evaluating financial companies' inclusive finance, it will introduce a plan to comprehensively assess not only the scale of supply but also the effects of interest rate reductions, improvements in borrowers' financial access, arrears prevention, linkage to debt adjustment, and whether a company's internal corporate governance is reflected.
The Financial Services Commission (FSC) plans to prepare institutional improvement measures through sub-subcommittee discussions and sequentially announce them at the inclusive finance grand transition meeting.