Bank of Korea reshapes lending support for regional SMEs

The Bank of Korea said that its Monetary Policy Board revised lending regulations at its July 23 meeting to create a program that adjusts support limits with economic conditions and monetary policy.

The board said the overhaul was needed because of changing policy conditions, including disparities between sectors and conflicts among policy variables. The lending-support system has helped moderate economic volatility by improving small businesses' access to finance, but the bank said it needs a stronger role as a monetary-policy tool.

The program will begin next year and expand financing support for regional small and medium-sized businesses with comparatively limited access to credit. Programs operated on a fixed basis for particular sectors, which the board described as having quasi-fiscal characteristics, will be gradually reduced or eliminated.

The Bank of Korea said the new program will complement interest-rate policy by allowing its lending limit to be adjusted flexibly. Board members called for detailed implementation plans covering the appropriate total lending limit, its allocation and the applicable interest rate.

The bank's relevant departments said they would "make every effort" to ensure that economic participants understand the purpose and details of the overhaul. Before the program takes effect, the bank plans to consult financial institutions and related departments and prepare the needed infrastructure and institutional arrangements.

The revised rules reflect the new program in Article 9 of the Bank of Korea's regulations on loans to financial institutions.