The South Korean government will revise commercial loan evaluation systems to ensure a total 100 trillion won ($88.7 billion) worth of loans to be funneled into innovative small- and mid-size enterprises over the next three years.

In a ceremony proclaiming vision for innovative finance on Thursday, the Financial Services Commission (FSC) announced plans to overhaul the country’s credit assessment systems to make banks adopt an integrated collateral system for corporate credit loans. FSC Chairman Choi Jong-koo said that the latest move is part of redesigning the country’s overall financial system by moving away from a credit assessment system that focuses on loans backed by traditional collaterals such as properties and earnings to one that is based on a bundle of collateral and future growth potential.

Under the plan, the government will introduce an integrated collateral system in which lenders assess a broader range of assets of a company as collaterals. The system had been proposed by President Moon Jae-in earlier to the FSC hoping to revitalize the sluggish economy. Financial institutions currently lend loans to enterprises backed by collaterals in the form of machinery, stock inventory, bonds, and patents.

The government expects the change in credit assessment systems would allow innovative SMEs and mid-sized conglomerates to access to 100 trillion won in total until 2021.

To introduce the new credit assessment system, the government will amend the country’s asset-based lending law. The FSC plans to introduce a bill by June and revise the related law before the end of this year.

The FSC also said that next year, lenders’ credit assessment system that is divided into two – credit evaluation and technology evaluation – will be unified into one. Banks have been evaluating corporations’ technology capability upon evaluating for loans since 2014 as part of a policy to boost technology finance but it has been referred to only as a secondary reference for assessing credit line and setting a lending rate.

The change in the system will first be applied to large banks and then to all financial institutions. The FSC plans to provide incentives – lower credit guarantee fund fees and higher policy finance – to banks that actively adopt the new integrated credit assessment system.

By Kim Dong-eun and Lee Eun-joo

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