Financial Regulations Relaxed to Boost Corporate Lending and Strategic Investments
Seoul, South Korea – Financial authorities are implementing notable changes to capital regulations, aiming to shift funding away from real estate and towards corporate loans and strategic industries. These adjustments, announced at the inaugural Productive Finance Conversion Meeting held at the Yeouido SME Federation in Seoul on October 19th, are expected to unlock substantial capital for investment.
the changes primarily focus on adjusting risk weights assigned to different asset classes. Mortgage risk weights will increase from 15% to 20%, while the risk weight applied to stocks will be lowered from 400% to 250%.Exceptions to the 400% stock risk weight will be limited to short-term sales (under 3 years) and venture capital investments lasting less than 5 years. This shift is intended to encourage longer-term equity investment in companies.
The Financial Services commission (FSC) estimates these adjustments will increase banks’ capital ratios and expand their lending capacity by up to 31.6 trillion won. Furthermore, applying an average risk price of 43% to corporate loans could perhaps increase investment by as much as 73.5 trillion won.
Beyond these core changes, the FSC is also streamlining procedures and providing clearer guidelines for policy funds, aiming for 100% utilization. This includes facilitating support for specific economic sectors through government, local government, and policy financial institution assistance. Policy financing will be actively directed towards high-tech and venture companies, as well as bolstering local economies.
A key initiative is the launch of a 150 trillion won “National Growth Fund” in December,focused on strategic industries including artificial intelligence (AI),semiconductors,bio,secondary batteries,and future automobiles. The fund will also actively support the gaming and content industry and venture ecosystems requiring patient capital. The FSC is actively seeking “mega projects” to serve as flagship investments for the fund.
In the capital markets,the FSC is considering the introduction of Business Development Companies (BDCs) and associated tax benefits to stimulate venture investment. Tokenized Securities (STO) will be institutionalized to facilitate fundraising for small and medium-sized enterprises and other businesses. large securities firms will also be mandated to increase their venture capital contributions.
The FSC is coordinating these efforts through a dedicated task force comprised of industry experts and stakeholders, reporting progress through the “Productive Financial Conversion Meeting” led by the finance committee chairman.The chairman emphasized the need for finance to “act as a rudder of the national economy,” driving growth and addressing current challenges. The FSC plans to publicly release the detailed plan, incorporating feedback from experts and consumers, once finalized.
