The Financial Services Commission held the seventh meeting on propelling a transition to inclusive finance with officials from related organizations and private sector experts on October 28. At today’s meeting, officials discussed plans to introduce a comprehensive evaluation system on inclusive finance for financial companies and ways to bolster the management of non-performing loans (NPLs) by public financial institutions.
Inclusive Finance Evaluation System
In order to make inclusive finance a more embedded culture across all financial sectors, the FSC along with the Financial Supervisory Service plans to introduce a comprehensive evaluation system on inclusive finance to more effectively induce financial companies to internalize inclusive finance as a core part of their management activities and encourage them to continue to expand efforts in this area.
Seventeen domestic banks subcategorized into three groups—(a) large banks, (b) small- and medium-sized banks, and (c) internet-only banks—will be subject to relative evaluation under the inclusive finance evaluation system. The FSS will oversee the evaluation process and an evaluation committee (including a chair appointed from the private sector) will be established to decide on final evaluation results. Financial companies will be evaluated on their previous year’s performance every year and the results will be announced in March. Starting from next year, the inclusive finance evaluation system will be expanded to the non-banking sector.
There will be five evaluation criteria—(a) corporate governance, (b) supply of funds, (c) debt adjustment, (d) social consideration, and (e) non-financial service—for evaluating the overall inclusive finance performance of financial companies.
a) Corporate governance (10%) A qualitative assessment will be performed on the inclusive finance strategy, system, and process of financial companies to promote an internalization of inclusive finance in their management activities.
b) Supply of funds (35%) Financial companies will be evaluated on their supply of funds (policy-based microloans and their own microfinance products) intended for lower-income individuals and borrowers with mid-to-low credit standings. Not only the quantity of funds being supplied but also the qualitative factors, such as the level of interest rates, benefits provided to borrowers who make diligent repayments, and loans extended to socially vulnerable groups, will be evaluated.
c) Debt adjustment (35%) Financial companies will be evaluated on how actively they provided debt adjustment support in various forms and channels including via the Credit Counseling and Recovery Service (CCRS) and court-administered procedures, their own debt workout programs, and through cancellation of personal overdue debts. For financial companies’ own debt workout programs, qualitative factors will also be taken into account, such as the level of principal forgiveness and the record of repayments made with debt workout support.
d) Social consideration (10%) Financial companies will be evaluated on their performance regarding the youth future savings program and interest rate reduction support to promote more active provision of assistance for the asset accumulation of young adults and the interest rate reduction of borrowers.
e) Non-financial service (10%) Financial companies will be evaluated on their performance regarding the one-stop finance-employment-welfare assistance program and the financial consulting and education programs.
Aside from these criteria, extra points of about 10 percent may be granted based on a qualitative assessment of banks’ own inclusive finance efforts.
For each evaluation group, financial companies will be given grades (S, A, B & C) and the evaluation results will be publicly available to encourage competition and improvement. There will be various incentives and penalties for financial companies in accordance with the evaluation grades they receive in the areas of microfinance contribution levels and penalty surcharge levels.
Since financial companies are being evaluated on inclusive finance for the very first time this year, the incentive and penalty scheme will take effect from the next year’s evaluation cycle. Evaluation results for this year will be published in March next year.
As it is deemed necessary to continue to update and upgrade the evaluation criteria based on changing market conditions and policy needs, next year’s evaluation criteria will be determined by June after having an expert review on the appropriateness of the evaluation criteria.
Debt Adjustment & NPL Management
At today’s meeting, officials also discussed ways to continue to encourage financial companies to bolster the provision of debt workout support for vulnerable debtors including self-employed business owners and small merchants and upgrade the NPL management system of public financial institutions. In this regard, the FSC will continue to push for the prompt resolution of long-term overdue debts and seek improvements to public financial institutions’ NPL management system to make it more focused on assisting distressed debtors to recover and regain footing financially. In the meantime, authorities will also strengthen support for personal rehabilitation and bankruptcy proceedings and other assistance through the one-stop finance-employment-welfare support program.
* Please refer to the attached PDF for details.