[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 NoteThe Lee Jaemyung administration has declared a major shift toward "productive finance." The key is to redirect capital currently concentrated in real estate toward advanced and strategic industries. As the global technology hegemony race expands into a "capital war," the United States, China, Japan, and Europe are combining state capital and private finance to funnel astronomical sums into strategic industries. In contrast, Korean finance is still criticized for remaining stuck in a conservative, real estate-collateral-centered structure. There are growing concerns that continued misallocation of resources could lead to Korea falling behind in technological competition. To address this, the government has launched the "National Growth Fund"—a policy-private finance hybrid worth 150 trillion won—to kickstart structural transformation. This series explores the necessity of productive finance, the limitations of private finance, and the policy challenges that must be addressed going forward.

Although the five major financial holding groups have announced plans to supply more than 500 trillion won of large-scale productive finance over the next five years, there are growing concerns within and outside the financial sector that this could devolve into a "numbers game." With the government's strong drive for scale, banks may focus solely on expanding the size of capital, potentially undermining the original purpose of productive finance by prioritizing quantity over quality. Experts advise that banks should strengthen their ability to distinguish companies with growth potential and technological prowess, while the government should relax regulations to enable banks to expand equity investments beyond simple lending.

Productive Finance Performance: Controversy Over Haphazard Tallying

According to the financial sector on April 27, the five major financial holding groups—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 includes corporate loans, along with some group-level investments, meaning that nearly half of the annual target (80.5 trillion won) was achieved in just one quarter.

However, the actual net increase in corporate loans was only about 15.0483 trillion won. Even considering that both loan repayments and new loans are reflected, the gap between reported performance and net increase exceeds 20 trillion won.

Within the financial industry, there is a prevailing view that, in the absence of unified standards and clear "labels" for productive finance, as well as the financial authorities’ practice of performance "ranking," the reported figures have been inflated. An executive at a commercial bank pointed out, "Since there is no clear standard for productive finance, each bank tallies its numbers differently. Some banks include almost every industry except real estate leasing, or even count simple loan extensions and interest rate reductions as productive finance, leading to a haphazard aggregation of figures."

The problem is that such a numbers-driven competition can distort the flow of capital. The intent of productive finance is to shift funds away from collateral-based household lending and into innovative and advanced industries. However, in practice, critics note that lending has devolved into a "divide-and-conquer" approach centered on high-quality small and medium-sized enterprises, resulting in overheated competition among banks. Another commercial bank official stated, "As competition for securing high-quality companies to meet performance targets intensifies, ultra-low interest rate loans are spreading, even at the cost of negative margins. Interest rates in the low-to-mid 2% range have become common, and there are even cases of rates in the high 1% range being offered."

Banks’ Technology Evaluation Workforce Remains at "Around 20" for Over a Decade...Lack of Corporate Finance Capability

The fundamental reason why productive finance in the banking sector remains a numbers game is attributed to the lack of corporate finance capabilities. Korean banks have long relied on collateral-based loans or loans guaranteed by Korea Credit Guarantee Fund and Korea Technology Finance Corporation, without sufficiently accumulating independent corporate credit evaluation expertise. In particular, their ability to assess companies’ technological capabilities is considered notably weak.

Currently, each of the five major banks employs only about 20 specialized personnel for technology evaluation. This figure has remained virtually unchanged for over a decade at the minimum required by the Technical Credit Bureau (TCB) system, introduced during the Park Geun-hye administration to promote technology finance. Most banks continue to depend on external technology evaluation agencies. Ultimately, with the current workforce and review structure, it is difficult to conduct sophisticated screening of companies with technological strength and growth potential—the core of productive finance.

A commercial bank official explained, "If we conduct in-house technology assessments, the cost per case exceeds 800,000 won considering the salaries of specialized personnel, but using external agencies lowers this to 200,000–300,000 won. Given the scale of lending, efficiency is low, which also limits the expansion of internal staff."

Abroad: Active Hiring of Industry Experts and Equity Investments... "Lending Alone Is Not Enough"

In contrast, major global banks hire industry-specific experts to conduct detailed corporate evaluations and operate models that combine lending with equity investments. For example, last year, JPMorgan in the United States announced a roadmap to support a total of 1.5 trillion dollars over ten years to strengthen the nation’s industrial competitiveness, allocating 10 billion dollars specifically for equity and venture investments. To this end, it hired a large number of finance professionals specializing in 27 advanced industries, including defense, energy, and artificial intelligence (AI). Rather than relying solely on financial statements, these banks actively incorporate "non-financial factors" such as technological prowess and industry insight into their funding decisions.

The gap in investment methods is also significant. According to the Korea Institute of Finance, as of 2025, the proportion of "venture lending" by banks in U.S. venture capital investment is 24.6%, with the U.K. also in the low 20% range. In contrast, Korean banks fall short of even 1%. While venture lending is formally a loan, it also has the characteristics of equity investment and provides stage-specific funding to companies, distinguishing it from conventional loans.

Experts agree that banks need to strengthen technology assessment capabilities and go beyond simple lending to expand "investment finance." For this, continuous easing of regulations on separation of banking and commerce and risk-weighted assets (RWA) is necessary. Under current regulations, banks cannot hold more than 15% equity in general companies, which significantly limits investment expansion. Although financial authorities recently lowered the RWA for unlisted stocks (for companies with more than five years of operation) from 400% to 250%, and applied a 100% special rate to policy funds, there is a consensus that such preferential treatment should be extended to various investment finance areas, such as venture lending.

Kim Sangbong, Professor of Economics at Hansung University, emphasized, "Currently, most productive finance is skewed toward lending, which limits the development of technology-based industries. The government needs to relax regulations on the separation of banking and commerce and on RWA, so that banks can provide both loans and equity investments." Kang Kyunghoon, Professor of Business Administration at Dongguk University, also pointed out, "Without institutional reforms that allow banks to invest in SMEs, it is difficult to realize productive finance based on collaboration within financial groups."

There are also warnings that if the transition to productive finance is delayed, banks may lose their leadership in the financial market. Professor Kim warned, "With the current low-risk, low-return structure focused on collateral-backed household loans, IT companies could eventually dominate the financial market. The shift 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.