[Change the Flow of Money]⑥"Am I Responsible for Losses?" Ambiguous Indemnity Criteria Halt Financial Flows

Commercial banks have unanimously pointed out that the scope and criteria for liability exemption related to investments in innovative companies remain ambiguous, urging the establishment of more concrete and effective guidelines. To revitalize productive finance, they recommend that improvements to the exemption system be accompanied by a multifaceted set of institutional enhancements, including capital regulation relaxation, the development of risk-sharing mechanisms with policy finance, the promotion of equity investment, and the introduction of tax incentives.

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According to a survey conducted by The Asia Business Daily on April 28 targeting KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and NH NongHyup Bank, all five major commercial banks identified the lack of clarity in liability exemption criteria and scope as a common challenge.

An official from Commercial Bank A stated, "Even if the exemption system is codified, there is a prevalent sense that the criteria for actual protection in the field are ambiguous. While the intent of the policy and adherence to procedures are emphasized, there are concerns that, if losses occur, responsibility will be judged retrospectively and become more pronounced."

The evaluation culture focusing solely on 'ex post responsibility' was also cited as a factor undermining the vitality of corporate finance. As this results-oriented atmosphere permeates organizations, front-line staff feel that liability exemption regulations do not function as genuine safeguards. An official from Commercial Bank B pointed out, "When insolvency arises, the culture still emphasizes holding individuals accountable for the outcome itself rather than the decision-making process. This gap has become a barrier to bold support at the field level."

An official from Commercial Bank C explained, "If insolvency occurs later, there is a tendency during audits or inspections to rigorously scrutinize any negligence with a hindsight perspective. For staff members, the psychological burden of having to prove their own innocence makes it difficult to move beyond a conservative decision-making framework."

Commercial banks cite the conflict between profitability and risk management as the biggest obstacle to expanding productive finance. Corporate finance carries higher risk weights compared to traditional retail finance and directly pressures asset soundness indicators. To alleviate these burdens, banks collectively call for reducing the burden of risk-weighted asset (RWA) management. Although financial authorities have recently announced that capital requirements may be eased under certain conditions for large-scale incidents at banks with low recurrence risk, doubts remain about the effectiveness of such measures.

In particular, lending to small, medium-sized, or innovative companies without or with low credit ratings and insufficient tangible collateral is subject to high risk weights (RW), making it difficult for the financial sector to participate actively. Currently, the average risk weight for corporate loans is around 43%. While companies rated AA- or higher are assigned a 20% risk weight, unrated companies face a 100% risk weight.

An official from Commercial Bank D explained, "Loans to small and venture companies, as well as investments in innovative industries-which are at the core of productive finance-are assigned higher RWs than ordinary collateralized loans. Amid strengthened shareholder return policies and tighter prudential regulations, any increase in RWA becomes a significant burden when deciding whether to expand productive finance."

The calculation of RWA and capital regulation is based on the Basel framework, making changes difficult. However, experts suggest that it is necessary to review whether domestic regulations are relatively conservative compared to major countries and to consider rational regulatory easing.

There is also an urgent call for supplementary measures to promote equity investment. They argue that institutional options should be broadened to allow for various methods, such as fund contributions and joint investments, in addition to direct investment.

An official from Commercial Bank E proposed, "Beyond direct capital supply by banks, progressive legislation is needed, such as permitting venture investments by retirement pension funds." Additionally, there were calls for incentives to offset investment uncertainty, including the relaxation of restrictions on non-financial equity holdings and mechanisms to compensate for venture investment losses.

Furthermore, there is growing support for strengthening cooperative structures that allow policy finance and private finance to share the risk of losses, as well as for providing tax benefits on investment returns. Such priming measures are considered essential for financial institutions to take on risk and channel funds into productive sectors.

Currently, the Financial Services Commission has begun collecting input from the banking sector to establish 'productive finance exemption guidelines.' A commission official stated, "Our policy will reflect practical exemption criteria based on the difficulties that financial institutions face in the field."

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