By Kim Tae-gyu
Staff Reporter
Two overseas lenders, Standard Chartered (SC) First Bank and Korea Exchange Bank (KEB) failed to meet requirements of a memorandum of understanding (MOU) signed with the financial regulator on loans to small companies last year.
The Financial Supervisory Service (FSS) and commercial lenders said Tuesday that the amount of credits to small- and medium-sized enterprises (SMEs) accounted for 67.6 percent of the net increase in overall lending last year.
This outperformed the MOU requirements between the FSS and banks under which lenders promised to keep the rates of loans to small firms at higher than 50.4 percent on average last year, however, SC First and KEB fell far below their benchmarks.
SC First jacked up its outstanding loans by 3.5 trillion won throughout last year but only a mere 10 percent of them were geared toward small companies while KEB reduced the amount by 900 billion won.
The benchmark rates stipulated by the MOUs, which were agreed late 2008 just after the financial crisis began, were 48 percent and 47 percent for SC First and KEB, respectively.
``The two banks slashed lending to small companies much early last year at the peak of the economic slump. They tried to crank up their numbers afterwards, but they could not meet the annual targets,'' an FSS official said.
``We employed every measure imaginable when they failed to meet the MOU in the bimonthly checks including sending notification to their global head offices and carrying out unscheduled inspections. As a result, they ratcheted up the amount in the latter part of 2009 but fell far short of the yearly requirements,'' he said.
The anonymous official contended that some foreign banks, which do not cooperate with the financial regulator, are accused of spoiling nationwide efforts to shore up the nation's financial health.
``In our view, banks are different from private companies in the sense that they are sometimes obliged to assume public missions like maintaining the financial stability or underpinning the economy, particularly during extreme downturns,'' he said
``Toward that end, they might forsake just a small portion of their profits. Yet, if some refuse to participate in the initiative, they could be branded as free riders, which can sap the morale of others,'' he said.
When contacted, KEB claimed that they did their best to increase credit to small companies in the aftermath of the unprecedented global financial crisis.
``We diminished loans to small firms early 2009 because the economy struggled so much back then. But we tried to lend more money to them in the latter part of the year in cooperation with the FSS,'' a KEB spokesman said.
SC First Bank gave a similar response.
``We focused on de-risking portfolios in the first half of 2009 and increasing loans to quality SMEs. The bank then saw strong loan growth in the second half, for example 53 percent of all lending during the final two months of 2009 was for SMEs,'' an SC First spokeswoman said.
``The net result of de-risking portfolios and increasing SME lending is therefore not so material at this stage. The bank is committed to Korea and continues to support its SME businesses,'' she said.