Savings banks allowed in auto financing

By Kang Seung-woo

Savings banks will be allowed to tap into the auto financing industry, the financial regulator said Wednesday.

Also secondary lenders located outside Seoul and Gyeonggi Province will be licensed to do business in the capital area.

The Financial Services Commission (FSC) came up with measures to help the troubled secondary-banking industry secure stable profits and fiscal soundness rather than focusing on high-risk project financing (PF) loans.

According to the FSC, a savings bank, which meets several requirements for fiscal health, will be allowed to do business in the auto financing sector.

It will need a Bank of International Settlements (BIS) ratio of over 10 percent, a non-performing loan ratio of less than 8 percent and a Grade II or above in management evaluation.

“We expect savings banks to play a positive role in the industry, especially in dealing with used cars,” Koh Seung-beom, director-general of the FSC’s financial services bureau said in a briefing.

“In addition, we do not worry that savings banks’ arrival will damage the current players.”

The FSC said 28 savings banks currently meet the financial conditions for engaging in auto financing. Even though they could offer the service, more than half of such loans should be provided to individual customers or smaller firms in the areas where the savings banks are located.

The FSC also said that it will lower the mandatory loan ratio for savings banks outside metropolitan areas to 40 percent from 50 percent because they have had trouble satisfying the criterion due to the concentration of human and economic resources in the Seoul area.

According to the FSC, the banks’ required ratio averages around 40 percent.

The financial regulator plans to return savings banks, first created to help people of modest means or small- and medium-sized enterprises, to their primary roles.

The plan says that a savings bank can establish up to three branches specializing in lending with just pre-reporting.

In addition, the Korea Federation of Savings Banks will establish a joint office to extend loans to ordinary people.

The FSC plans to submit a revision bill to the National Assembly during the third quarter of this year.

However, the plan is drawing negative reactions among market watchers.

“I think the FSC does not have to do that because savings banks, which can meet the requirements enough to enter the auto financing industry, need not look to other sectors. They surely can survive in their current areas,” said a Seoul-based economist, who declined to be identified.

He also said deregulation was not a good idea.

“Savings banks do not need a nationwide network. They are local-based financial institutions, aiming to do business with local people. This plan derails their original purpose,” he said.