Savings Banks Hold People's Finance Forum: "Increased Policy Finance Weakens Private Supply Capacity"

April 22, Korea Federation of Savings Banks 4th Forum on Financial Inclusion
"Public Loans and Guarantees Expand but Loan Screening Ability Does Not Improve"

Oh Hwa-kyung, President of the Korea Federation of Savings Banks, is delivering a greeting at the 4th Forum on Financial Inclusion for the Underprivileged on the 22nd.

[Asia Economy Reporter Song Seung-seop] “If policy-based microfinance is continuously expanded in the long term, the supply capacity of microfinance companies may weaken, leading to vulnerabilities in risk analysis and evaluation functions.”

On the 22nd, at the 4th Savings Bank Microfinance Forum held by the Korea Federation of Savings Banks at the Bankers Hall in Jung-gu, Seoul, Cho Seong-mok, President of the Microfinance Research Institute, who gave the keynote presentation, stated, “It is necessary to expand the role of microfinance companies through market functions.” Attendees included Chairman Oh Hwa-kyung, Lee Jin-su, Director of the Small Finance Division at the Financial Services Commission, and Dr. Lim Hyung-seok from the Korea Institute of Finance, among other industry officials.

President Cho pointed out, “Excessive dependence on policy finance is likely to further weaken the supply capacity of microfinance companies,” adding, “Even if public loans and guarantees expand, it is not easy for public institutions or microfinance companies to improve their loan screening capabilities.” For example, in the case of the Sunshine Loan, which has a guarantee ratio of 90-95%, there is little incentive to enhance the loan screening function.

He also called for a redefinition of the role of savings banks. President Cho explained, “In the past, savings banks competed with commercial banks, which led to major incidents in small loans and project financing (PF) loans,” and added, “Instead of competing with banks, it is necessary to establish a relationship where savings banks complement areas where proper financial supply is not provided by banks alone.”

He emphasized the need for regulatory improvements and policy support from the government. President Cho said, “Previous administrations have all talked about revitalizing microfinance, but I have not seen a government that truly considers microfinance,” and stated, “Through regulatory restructuring of the savings bank industry, policy support is needed to enable them to play an important role in credit supply to low-income households and small businesses.” He added, “Consumer protection and soundness regulations should be strengthened, but autonomous business operations should be improved.”

Regarding the deposit insurance system, which the financial authorities are currently revising, President Cho voiced calls for fee reductions. He argued, “If microfinance support is required but the deposit insurance premium is five times higher than that of banks, ultimately the burden falls on low-income households,” and said, “I hope these regulations will be relaxed.”

The financial authorities showed a cautious stance. Lee Jin-su, who participated as a panelist, said, “While short-term profits may improve, we are monitoring what impact might occur if the economy worsens,” and added, “The financial authorities are paying close attention to the soundness of PF and real estate sectors during the interest rate hike period.” Regarding demands for easing various regulations, including deposit insurance premium reductions, he responded, “We will listen carefully to the industry’s opinions and strive to reach a reasonable conclusion.”

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