Second financial sector negatively reacts to financial support for small business owners and self-employed
Reluctant to launch 30 trillion won ‘new start fund’ and 8.5 trillion won ‘low interest exchange’ programs
Capital companies are also concerned regarding profitability decline due to low-price sale of loans and self-debt adjustment
‘Critique’ stingy to support the vulnerable despite having special benefits in the Corona 19 and low interest rate environment
Ahead of the launch of a Startup Fund (30 trillion won) and a low-interest exchange program (8.5 trillion won) to support small business owners and self-employed people affected by the COVID-19 crisis, the second financial sector is reacting negatively, fearing a decrease in profitability.
Many of the recipients of the Startup Fund support are customers of the second financial sector, because financial institutions have to either hand over their loans to the fund at a low price or adjust their debts themselves. It is pointed out that savings banks, which were revived with public funds in the past, are being stingy in supporting the vulnerable even though they enjoy special benefits in the low interest rate environment of the corona virus.
According to the financial industry on the 19th, the Financial Services Commission and the Korea Asset Management Corporation (Kamco) will explain the details of the start-up fund to the savings bank loan and fund managers at the Savings Bank Federation in Gongdeok-dong, Seoul on the 22nd. The savings bank industry believes that the introduction of this system will inevitably reduce profitability and lead to customer churn.
2 Financial institutions believe that the low-interest exchange program, a policy financial product for the self-employed and small business owners, will also have a negative impact on the industry.
The low interest repayment program is a product that converts high-interest loans of more than 7% per annum to a maximum of 6.5% per annum from borrowers who have relatively more repayment ability than those eligible for the Startup Fund. The limit is 50 million won for individual entrepreneurs and 100 million won for corporate small businesses.
As of the end of February this year, loans of more than 7% per annum held by individual entrepreneurs and corporate small businesses in non-banking sectors stood at 17,615.4 billion won, or 411,564 cases, four times higher than that of banks (4,290.1 billion won, 76,684 cases) in terms of balance. exceed
An official from the second financial sector said at a briefing on the New Start Fund financial sector held on the 18th, “The borrowers concerned regarding the insolvency seen by the financial authorities are our ordinary customers and normal borrowers.” Another savings bank official said, “Both the Startup Fund and the low-interest exchange program have a negative impact on the industry.”
The financial authorities are of the view that they understand the concerns of the second financial sector, but on the other hand, they are not comfortable with the attitude of the industry, which has changed from the previous savings bank crisis.
The total assets of the savings bank industry were 86 trillion won at the end of 2010, but fell to 38 trillion won in 2014, starting with Samhwa Mutual Savings Bank in 2011 and closing one by one. 27.2 trillion won of public funds was injected into the restructuring of 31 insolvent savings banks.
After that, savings banks returned to growth once more, and in 2020, when the COVID-19 crisis began in earnest, total assets exceeded 92 trillion won, recovering to the level before the savings bank crisis. Last year, it recorded 118 trillion won, the highest growth rate over the past 10 years (28.3%).
Capital’s total assets also increased significantly from 80 trillion won in 2019 to 98.5 trillion won last year. At the same time, the total loan balance of the two financial institutions surged by a whopping 160.4 trillion won (70.7%) over the two years and six months from 2020 to the end of June this year.
Rather, the financial authorities are more serious regarding the deterioration of soundness due to the insolvency of real estate project financing (PF) loans than the negative effects of the implementation of the Startup Fund or the low interest rate repayment program. The FSC is reported to have recently requested the Financial Supervisory Service to thoroughly monitor the risk of insolvency of savings banks. Bok-hyeon Lee, the head of the Financial Supervisory Service, also urged the Bank for International Settlements (BIS) to increase its equity capital ratio and build up sufficient provisions at a savings bank CEO meeting held last month.
The Financial Supervisory Service estimates that among the PF loans of savings banks, the amount of loans classified as normal reaches 1.3 trillion won despite the low completion rate or pre-sale rate.
