FSS wants savings banks to offer more micro-loans

Financial regulators plan to activate micro-loan issuances to individuals from the savings banking industry by curbing excessive competition among credit card companies.

The plan comes as credit card issuers have been vying to issue loans despite customers’ low credit standings.

“Though the savings banking industry has been severely damaged due to construction-related toxic loans, there are still many savings banks with normal financial soundness,” said an official of the Financial Supervisory Service.

He said even distressed players will eventually see business normalization in the coming months or years following a mass restructuring under the guidance of financial authorities.

“We could expect that savings banks acquired by major financial groups or securities firms will play the role of lending to lower income brackets,” he said.

A local banker said: “Borrowers may face stricter requirements when they apply for loans at a financial group’s savings banking unit. But the issue is that the lending could have fewer risks compared to credit card loans.”

Credit card companies ― particularly players who joined the saturated market later than major companies ― have been quite discontented with the regulatory policy.

The “3-percent rule” recently set by the FSS is haunting the credit card industry. The rule bans companies from posting a growth rate of more than 3 percent in the issuance of cards per annum.

Shinhan Card, the largest credit card company, saw its issuance growth rate inch up by 2.6 percent during the first quarter of 2011, from the same period of last year.

But most companies recorded more than 10 percent in their annual growth rate over the corresponding period.

Lotte Card topped the list with the rate of 16.8 percent, followed by Hana-SK Card with 13.8 percent, KB Kookmin Card with 12 percent, Samsung Card with 11.7 percent and Hyundai Card with 11.4 percent.

The 3-percent growth up could hinder players with lower market shares.

Concerning complaints over the same percentage regardless of business scale, FSS officials have said that a strong crackdown is inevitable for the nation to avoid another credit card fiasco.

The FSS has already instructed card issuers to conduct stricter risk management.

Like in 2002, a senior FSS official has said, there is a high possibility that credit card companies will engage in reckless business expansion without appropriate risk management.

He pointed out increasing card loans and cash advance services.

“If the benchmark interest rate is hiked further, credit card companies will possibly see the delinquency ratio climb and bad assets increase,” he said.

By Kim Yon-se (kys@heraldcorp.com)