Due to the aftereffects of restructuring weak saving banks, the asset size has been sharply shrunk. In fact, according to a recent study, total asset size in March 2012 was down to 63 trillion won and LTD ratio (loans-to-deposits ratio) has also decreased by 8% comparing to that in 2010. If this downswing goes on, a gap of small-loan between the bank and the business loan is expected because of Korean finance system. Therefore, the government planned to expand cross-sales loans between saving banks and banks for smooth supply of small-loan.
Then, how will these cross-sales loans be expanded in detail? First of all, each bank will act on behalf of the business loan by signing outsourcing contracts and promoting the loans of saving bank.
As seen in this picture, when a financial consumer is rejected the loan from the bank, he or she does not need to receive private money lending services. Instead, the bank will connect the customer to the saving banks which have far cheaper lending rate. Any consumers, including small and medium-sized businesses and individuals, who were resisted lending money from the bank can apply for these cross-sales loans. In addition, banks will act as loan solicitors and receive necessary documents for loans. However, playing the essential role of the saving bank such as approving the loans will not be allowed and this plan is restricted to the bank in the same place with the saving bank.
This new policy for cross-sales loans will bring about two major expected effects. First, financial consumers can enjoy lower lending fee and broadened choices of loans since everyone can have information about the loans only by visiting the bank. This is so-called ‘One-stop service.’ Moreover, the saving banks can also be favored by this plan because the loan broker fee would be steeply lowered. Therefore, the previous high-cost system will be improved. Eventually, a new market demand for saving banks will be created.
If nothing particular happens, this plan will have an effect from July this year and will be used to provide more operating power to saving banks to increase the asset size. When it is implemented with full explanation, both consumers and the saving banks will enjoy benefits.