Recently, several commercial banks have planned to establish subsidiary finance companies to enlarge their consumer credit operation. Two finance companies, which are subsidiaries of banks, have already registered as a finance company in May.
There are several reasons why commercial banks want to enlarge their consumer credit operation especially for low quality consumers. The traditional banking credit for the corporate sector and household with high credit rating is not as profitable as it was before due to the corporate sector's credit risk and high competition. Moreover, the consumer credit market in Korea has also rapidly increased its size after the currency crisis.
Some impacts on the consumer credit market, especially for consumers with low credit rating, are expected after the banks' entrance in this market. The size of the consumer credit market is expected to increase, and the market share of current finance companies and mutual savings banks are expected to decrease. Interest rates for loans in this market will decrease as banks' subsidiaries compete with existing finance companies and mutual savings banks. Moreover, banks' more advanced credit analysis capabilities will transfer to banks' consumer credit subsidiaries and ultimately to other financial institutions in this market. However, interest rates for loans in the curb market will not be affected much by the banks entrance because money lenders in the curb market are targeting credit-delinquent registered customers and there is a large interest rate spread between curb market money lenders and formal financial institutions.
Several supervisory concerns still remain. First, the financial supervision of finance companies should be strengthened because banks are planning to establish subsidiary finance companies and fierce competition may expedite asset quality deterioration. Second, a "Chinese wall" between parent banks and subsidiary finance companies should be established to maintain banks' soundness. Third, the current regulatory difference between banks' subsidiaries and financial holding companies' subsidiaries regarding financial assistance and consumer credit information usage from the parent banks or holding companies need to be harmonized. Lastly, more stronger consumer credit protection rules are required in the growing consumer credit market to minimize abusive lending and debt collecting practices.
은행의 소비자금융업 진출(The entrance of banks in the comsumer credit operation)
타당성 및 주요과제(Its adequacy and remaining tesks)
|Series Title; No||정책조사보고서 / 2002-05|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||한국금융연구원; KDI 국제정책대학원|