Commercial Banks to Offer State-Sponsored Loans to Farmers

Starting late this year at the earliest, farmers will be able to get a loan designed by the government to stimulate the agricultural sector not only from the National Agricultural Cooperative Federation (NACF) banks but also from commercial banks.

In addition, the government will also post a comparison chart of credit unions’ interest rates on the Internet in an effort to induce the NACF to reduce its interest rates.

In this regard, the Ministry of Agriculture & Forestry (MAF) reported the details of this year’s plan on Monday afternoon to President Roh Moo-hyun at Cheong Wa Dae.

According to the plan, all the commercial banks nationwide will be gradually able to handle the government’s various agriculture related funds. At the moment, NACF banks are the only banks that deal with the state-agricultural funds. The purpose of this plan is to provide financial assistance to farmers at better conditions by letting the NACF compete with commercial banks.

Thus, farmers will eventually be able to get a state-sponsored loan from any bank of their choice after comparing interest rates or loan conditions of banks, including NACF banks.

In addition, the ministry decided to establish the Agricultural Policy Budget Management Incorporation, an independent organization that exclusively manages loan related services with an annual budget of 600 million won allocated for a structural reform of agricultural and fishery sectors. Such a decision was made as experts point out that there is a high chance of moral hazard in the NACF as it is responsible for supervision, management, as well as distribution of the loan.

The ministry also drew up a long-term plan to reduce some of the existing 1,350 regional NACF banks to around 500 through mergers and closings. The NACF banks will be either closed or merged if their capital adequacy does not reach three percent in 2004 and four percent in 2006.

In the meantime, the ministry plans to induce structural reforms that would lead to an interest rate cut by posting the comparison chart of regional NACF banks’ loan interest rates early this year. The ministry also decided to reorganize NACF banks, which have been divided according to administrative districts, based on locales of living or production.

Jin-Hup Song jinhup@donga.com