Incentives Provided for All Mid-Interest Loans Used by Low to Medium Credit Borrowers

Effective from January next year

[Asia Economy Reporter Park Sun-mi] Starting January next year, incentives for mid-interest rate loans will be provided for all mid-interest rate unsecured loans supplied to low- to mid-credit borrowers based on the borrower unit rather than the product unit.

On the 27th, the Financial Services Commission approved amendments to the Mutual Savings Banks Act, Specialized Credit Finance Business Act, and Mutual Finance Business Act. The amendments include a complete overhaul of the eligibility requirements for mid-interest rate loans to ensure they are supplied to low- to mid-credit borrowers.

First, the pre-disclosure requirement for mid-interest rate loan products will be abolished, and the system will be restructured to provide incentives for all mid-interest rate unsecured loans supplied to low- to mid-credit borrowers based on the borrower unit rather than the product unit. This applies to borrowers in the lower 50% credit score bracket (grade 4 or below) and covers all unsecured loans meeting the interest rate caps by industry: banks (6.5%), mutual finance (8.5%), card companies (11%), capital companies (14%), and savings banks (16%).

Until now, incentives by industry were granted only to private mid-interest rate loans that met certain conditions: pre-disclosure as a mid-interest rate loan product, supply of at least 70% to borrowers with credit grade 4 or below, and compliance with industry-specific interest rate caps for unsecured loans. These loans were then counted as private mid-interest rate loans. This system caused issues where loans to high-credit borrowers were recognized as mid-interest rate loans, while low-interest loans to low- to mid-credit borrowers were not recognized as mid-interest rate loans.

Incentives for guaranteed business loans by savings banks have also been newly established. The supply performance of guaranteed mid-interest rate business loans backed by regional credit guarantee foundations will be weighted at 130% when calculating loan amounts within the business area. Although some savings banks partnered with regional credit guarantee foundations to newly launch guaranteed mid-interest rate business loans, unlike Saeitdol loans, no incentives were provided, which was problematic.

Additionally, the mandatory additional reserve requirements for high-interest loans in the savings bank and specialized credit finance sectors (30% for specialized credit finance, 50% for savings banks) will be abolished. This reflects opinions that punitive measures should be removed to absorb low-credit borrowers who are excluded from the loan business sector due to the reduction of the statutory maximum interest rate (from 24% to 20%).

A financial authority official stated, "We will encourage the supply of mid-interest rate loans to low- to mid-credit borrowers," and added, "The supervisory regulations for the Mutual Savings Banks Act, Specialized Credit Finance Business Act, and Mutual Finance Business Act approved by the Financial Services Commission will take effect from January 1 next year."

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