The Bank of Korea is set to revise its financial support loan system to allow for flexible adjustments in loan limits and interest rates for small and medium enterprises (SMEs), while also enhancing support for regional SMEs.
On July 23, the Bank's Monetary Policy Committee approved the proposed changes to the financial support loan regulations.
The financial support loan system is a policy tool that enables the Bank of Korea to provide low-interest funds to financial institutions, aimed at assisting SMEs that face relatively challenging funding conditions.
Currently, the total loan limit provided to banks is predetermined, with allocations made based on specific criteria. However, concerns have been raised about the rigidity of support levels, which have remained fixed for an extended period, making it difficult to respond flexibly to changing economic conditions.
There are also worries that the system has not adequately reflected changes in policy conditions, such as the expansion of the economy, leading to diminished effectiveness.
In response, the Bank of Korea has decided to enhance the functionality of the financial support loan system as a monetary policy tool.
Starting in the second half of next year, the Bank will introduce a new 'SME Credit Linkage Support' program that will allow for flexible adjustments in loan limits and interest rates based on economic conditions, targeting all SMEs rather than specific sectors.
Loan allocations will be based on the quarterly net increase in SME loans from banks, rather than on pre-established criteria.
To expand support for SMEs located in regional areas, the limit for the 'Regional SME Support' program will also be increased starting in the first half of next year. Despite the growth of regional economies, the limit has remained fixed at 5.9 trillion won since 2014.
The distribution of the increased limit for the regional SME support program will be determined by comprehensively considering changes in financial and economic conditions.
Additionally, the Bank plans to gradually reduce and phase out the 'Trade Finance Support' and 'New Growth and Job Support' programs, which have been operated with a quasi-fiscal nature for an extended period.
* This article has been translated by AI.
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