The government decided to offer cross-sales loans between saving banks and banks



     Due to the aftereffects of restructuring weak saving banks, the asset size has been sharply shrunk. In fact, according to a recent study, total asset size in March 2012 was down to 63 trillion won and LTD ratio (loans-to-deposits ratio) has also decreased by 8% comparing to that in 2010. If this downswing goes on, a gap of small-loan between the bank and the business loan is expected because of Korean finance system. Therefore, the government planned to expand cross-sales loans between saving banks and banks for smooth supply of small-loan.


     Then, how will these cross-sales loans be expanded in detail? First of all, each bank will act on behalf of the business loan by signing outsourcing contracts and promoting the loans of saving bank.

As seen in this picture, when a financial consumer is rejected the loan from the bank, he or she does not need to receive private money lending services. Instead, the bank will connect the customer to the saving banks which have far cheaper lending rate. Any consumers, including small and medium-sized businesses and individuals, who were resisted lending money from the bank can apply for these cross-sales loans. In addition, banks will act as loan solicitors and receive necessary documents for loans. However, playing the essential role of the saving bank such as approving the loans will not be allowed and this plan is restricted to the bank in the same place with the saving bank.


     This new policy for cross-sales loans will bring about two major expected effects. First, financial consumers can enjoy lower lending fee and broadened choices of loans since everyone can have information about the loans only by visiting the bank. This is so-called ‘One-stop service.’ Moreover, the saving banks can also be favored by this plan because the loan broker fee would be steeply lowered. Therefore, the previous high-cost system will be improved. Eventually, a new market demand for saving banks will be created.


     If nothing particular happens, this plan will have an effect from July this year and will be used to provide more operating power to saving banks to increase the asset size. When it is implemented with full explanation, both consumers and the saving banks will enjoy benefits.


Present situation in the financial market and Tasks to be solved

On May 9th, a political forum arranged by the National Strategy Institute (NSI) was held in the bank association hall. Concerning the present situation in the financial market and tasks to be solved, Kim Seok-dong, the Financial Services Commission (FSC) chairman gave a speech.

First, he pointed out the household debt which is one of the main issues in these days. Due to the high floating rate and a great deal of the loan, its structure is inevitably fragile. Worse, the increase rate of the debt to the nonmonetary institutions is higher than that of the bank debt. In addition, he suggested how serious the low fertility and the population aging are. In fact, they can cause decrease of the asset value and increase of the fiscal spending. Eventually, general economic activities and the national economic growth could be worsened. Moreover, according to him, the Korean financial industry has a low global competitiveness. Indeed, the asset size of the domestic financial industry only accounts for a tenth of that of the global TOP5 banks. This reveals that the financial industry has failed to reach the international standard, no matter how prosperous the real economy is.

To handle those problems, the Korean government has put much effort to come up with appropriate solutions. As its first step, the chairman Kim suggested a paradigm shift in the financial market so that the industries become more socially responsible. In fact, transforming the market into consumer-centered is the main goal for the government and hence, the attempt to develop the financial industry and protect financial consumers at the same time will be continued. In particular, to resolve the household debt, concrete and effective measures are suggested: the management of the market liquidity or the reinforcement of the petty loans. Furthermore, the government will not ease the loans to nonmonetary institutions. He also underlined that the restructuring of saving banks, one of the hottest issues in these days, is almost finished. Other than that, shrinking size of the call-money and the management of the stock risk are to be valid measures to prevent the bubble. Even he proposed to reform the current capital system. To achieve it, the government will encourage domestic investment banks and promote Korean hedge fund. In this process, the disposal of the Woori financial holdings will be necessary since it is a partly related to the public fund collection.

From the chairman’s address, it can be inferred that the Korean government is sincerely working hard to remove the obstacles blocking further development of the financial situation. Therefore, positive aftereffects are expected.



Sujin Yoo (