Banks Participate in Private Loan Business

Banks are allowed to participate in private loan business.

At 27th, financial Supervisory Commission (FSC) announced “FSC decided to allow banks participate in private loan business after establishing their subsidy financial companies and through them.”

FSC added “FSC is preparing several devices to stabilize banks’ operation from the negative effects of the subsidies.”

For the business, FSC considers restricting credit loan from financial companies and credit card companies up to 50%.

Ryu Jae-hoon, Senior Manager for Bank Supervisory of FSC commented, “FSC will reinforce the standard classification of the asset stability and bank reserve deposit steadily” and added, “When FSC assesses the management of bank operation, it will supervise if the bank separates its management and accounting statement from the subsidiaries.”

FSC will recommend banks to make joint venture with the companies concerned consumer finance to spread operational risk and to learn the know-how of consumer finance. The senior manager Ryu added, “The standard of asset stability for financial companies is more liberalized, therefore, there is a possibility for banks to use subsidies as a method of avoiding the regulation” and added “so FSC is considering the affects on financial industry by the banks participating in consumer finance business.” At the beginning, FSC planned to regulate rate, net asset, the number of branch of the subsidies, but it turned the direction to guarantee autonomous management of bank. At the moment, Citifinancial, subsidiary of Citibank, has already begun to operate, and other banks such as Koram Bank, Kookmin Bank and Shinhan bank are preparing to participate in the business.

Dong-Won Kim daviskim@donga.com