[Change the Flow of Money]④"500 Trillion in 5 Years" — Top 5 Financial Groups Inflate Productive Finance Results... Urgent Need for Stronger Technology Assessment and Screening

Controversy Over Rough-and-Ready Calculations: Vague Standards and Obsession With Rankings
Bank Technology Assessment Teams Stagnant at About 20 for Over a Decade, Exposing Limits in Corporate Finance Capability
Abroad, Banks Actively Hire Indus

Editor's Note
The Lee Jaemyung administration has declared a major shift toward 'productive finance.' The core of this policy is to redirect funds that have been concentrated in real estate toward advanced and strategic industries. As the global competition for technological supremacy expands into a 'capital war,' countries such as the United States, China, Japan, and those in Europe are pouring astronomical amounts of capital into strategic sectors by combining state capital with private finance. In contrast, South Korea's financial sector remains entrenched in a conservative structure centered on real estate-secured loans. There is growing concern that continued distortion in resource allocation could result in Korea falling behind in technological competition. In response, the government has launched the 150 trillion won 'National Growth Fund,' which combines policy finance with private capital, as a first step toward structural transformation. This series examines the necessity of productive finance, the limitations of private finance, and the policy challenges that must be addressed.

Although the five major financial holding companies have announced plans to supply more than 500 trillion won in large-scale productive finance over the next five years, concerns are mounting both inside and outside the financial sector that this could devolve into a 'numbers race.' As the government pushes hard for expansion, banks are focusing solely on increasing the scale of funding, leading to criticism that the intended purpose of productive finance could be undermined by an emphasis on quantity over quality. Industry experts advise that banks should develop their ability to differentiate between promising and less promising companies, and that the government should support this by easing regulations so that banks can expand equity investments beyond simply providing loans.

Productive Finance Results: Controversy Over 'Haphazard' Measurement

According to the financial sector on April 27, the five major financial holding companies—KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup—supplied a total of 36.3107 trillion won in productive finance in the first quarter of this year. This figure mainly consists of corporate loans, with some group investments added, meaning they achieved nearly half of their annual target of 80.5 trillion won in just a single quarter.

However, the actual net increase in corporate loans stood at just 15.0483 trillion won. Even considering the fact that both matured repayments and new issuances are included, the gap between gross performance and net increase exceeded 20 trillion won.

Within the financial sector, the dominant view is that the lack of unified standards and labeling for productive finance, coupled with performance benchmarking by financial authorities, has led to inflated figures. An executive at a major commercial bank commented, "There is no clear standard for what qualifies as productive finance, so each bank uses its own method for calculation. Some banks include nearly all industries except real estate leasing, or even count simple maturity extensions and interest rate reduction loans as productive finance, resulting in haphazard data aggregation."

The problem is that such a numbers race can distort the flow of funds. The original purpose of productive finance is to shift away from collateral-based household lending and supply funds to innovative and advanced industries. However, in practice, there are growing criticisms that this is devolving into 'carve-up lending' focused on high-quality small and medium-sized enterprises and excessive competition between banks. Another commercial bank official stated, "As competition to secure high-quality companies in order to meet performance targets intensifies, ultra-low interest loans are spreading, even at the cost of negative margins. Interest rates in the low-to-mid 2% range have become the norm, and there are even cases where rates in the high 1% range are being offered."

For Over a Decade, Fewer Than 30 Technical Evaluation Experts at Banks... Lack of Corporate Finance Capabilities

The fundamental reason why productive finance in the banking sector remains a numbers game is the lack of corporate finance capabilities. Korean banks have long relied on collateral-based lending or guarantee-backed loans from the Korea Credit Guarantee Fund and Korea Technology Finance Corporation, without sufficiently building their own credit assessment capabilities for corporations. In particular, their ability to evaluate companies' technological capabilities is considered severely lacking.

Currently, each of the five major banks has only about 20 technical evaluation specialists. This figure has remained virtually unchanged for over a decade at the minimum requirement of 20 experts, set when the Technology Credit Bureau (TCB) system was introduced during the Park Geun-hye administration to promote technology-based finance. Most banks still rely heavily on external technical evaluation agencies. As a result, under the current staffing and review system, it is considered difficult to conduct sophisticated screening to identify companies with strong technological capabilities and growth potential—the core of productive finance.

A commercial bank official explained, "When we conduct our own technical assessments, it costs an average of more than 800,000 won per case, considering the salaries of technical experts and other factors. In contrast, using external agencies reduces the cost to around 200,000 to 300,000 won. Given the scale of the loan supply, the cost-effectiveness is low, which limits our ability to increase staff."

Overseas: Active Hiring of Industry Experts and Equity Investments... 'Lending Alone Has Its Limits'

In contrast, major global banks hire industry-specific experts to conduct detailed evaluations and have systems that combine loans with equity investments. For example, when the U.S. government announced a 10 billion dollar equity and venture investment initiative last year to bolster industrial competitiveness, JP Morgan responded by recruiting a large number of financial experts specialized in 27 advanced industries, including defense, energy, and artificial intelligence (AI). Their approach goes beyond financial statements to actively consider 'non-financial factors' such as technological capabilities and industry understanding when supplying capital.

The gap in investment methods is also significant. According to the Korea Institute of Finance, as of 2025, the share of 'venture loans' by banks in U.S. venture capital investment is 24.6%. In the UK, the figure is in the low 20% range. In contrast, domestic Korean banks account for less than 1%. Venture loans, while technically structured as loans, also have characteristics of equity investments and provide funding tailored to the growth stage of companies, setting them apart from standard loans.

Experts agree that banks need to strengthen their technical due diligence capabilities and expand 'investment finance' beyond simple lending. To this end, they stress the need for continued easing of regulations on the separation of banking and commerce and on risk-weighted assets (RWA). Under current regulations, banks are not allowed to own more than 15% of a general company's equity, which restricts investment expansion. Although the financial authorities recently reduced the RWA for unlisted stocks held for more than five years from 400% to 250% and applied a 100% special case for policy funds, there is a consensus that such special cases should be expanded to diverse investment finance areas, including venture loans.

Kim Sangbong, Professor of Economics at Hansung University, emphasized, "Currently, most productive finance is focused on loans, which limits the growth of technology-based industries. The government needs to relax the separation of banking and commerce and RWA regulations so that banks can combine equity investments with lending." Kang Kyunghoon, Professor of Business Administration at Dongguk University, also pointed out, "Without systemic reforms such as allowing banks to make equity investments in small and medium-sized enterprises, it will be difficult to realize productive finance based on collaboration within financial groups."

There are warnings that if the transition to productive finance in the financial sector is delayed, banks could lose their leadership in the financial market. Professor Kim stated, "With a low-risk, low-return structure centered on collateral-based household loans, banks could ultimately be displaced by IT companies in the financial sector. Transitioning to productive finance is not just a matter of profitability, but a matter of survival for banks."

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