AI to assess small-business growth potential for loans as 16 banks join pilot

Starting at the end of next month, 16 banks will begin a pilot application of a small-business-specific credit scoring system (SCB) covering 2.2 trillion won ($1.5 billion) in business loans. Rather than relying on the owner's past financial history, the system uses a range of financial and non-financial data to assess future growth potential, with the aim of extending more low-interest loans to mid- to low-credit small-business owners who show high growth potential.

The Financial Services Commission said Monday it held a credit infrastructure subcommittee meeting of its inclusive finance strategy task force — also serving as the seventh session of the credit scoring system reform TF — at the Korea Federation of Banks building in Jung-gu, Seoul, chaired by Secretary General Shin Jin-chang, to review banks' readiness to introduce the small-business SCB.

The SCB pilot is set to launch in stages from the end of August, depending on each bank's readiness. The number of participating banks has grown from the original seven — IBK Industrial Bank, Shinhan, KB Kookmin, Woori, NH NongHyup, Hana and Jeju Bank — to a total of 16, with the addition of K Bank, Kakao Bank, Toss Bank, Suhyup, iM Bank, Busan Bank, Kyongnam Bank, Gwangju Bank and Jeonbuk Bank. The total loan volume has also increased by about 400 billion won.

The participating banks will adopt an AI-based SCB that evaluates the future growth potential of small businesses by sector using non-financial data such as sales figures, industry type and commercial district conditions, then offer preferential loan approval, interest rates and credit limits to businesses that receive high growth ratings.

The FSC said it is working with the industry to apply the SCB to a sole-proprietor version of the Saetdol loan product, set for launch in October. In addition, the commission plans to incorporate the SCB into the guarantee screening and assessment processes of regional credit guarantee foundations starting next year.

Regulations and guidelines specific to the small-business SCB are also being finalized. Revisions to the supervisory regulations on credit information services and the banking sector's individual business loan underwriting guidelines — both needed to introduce the SCB — are expected to be completed next month, and an SCB operating guideline covering usage procedures and liability exemptions is also set to be drafted and distributed in August.

"The small-business SCB is the direction of a financial paradigm shift that embodies inclusion and innovation at the same time," Secretary General Shin said. "We will continue to incorporate feedback from the field and refine the system so that the SCB can take stable root not just in the banking sector but across the entire financial industry."

The meeting also took up the question of rationalizing the registration period for public information related to personal bankruptcy and debt discharge. The FSC had earlier decided, in July last year, that individuals who had faithfully carried out a court-approved personal rehabilitation repayment plan for at least one year would have adverse information — previously shared through Korea Credit Information Services for five years — deleted early.

At the meeting, many participants raised the view that the five-year period for registering and sharing adverse information in bankruptcy and discharge cases should also be shortened, to help discharged debtors resume economic activity more quickly. However, some cautioned that bankruptcy and discharge differ legally and economically from personal rehabilitation — since they involve a full release from liability for debts that cannot be repaid — and that careful review is therefore needed.

According to the FSC, major economies including the United States, Japan and the United Kingdom typically retain bankruptcy and discharge information for five to 10 years, though some European countries such as Germany have recently moved to shorten the sharing period to between six months and three years.

The FSC said it would continue discussions to explore various approaches that minimize moral hazard among debtors while supporting their swift economic recovery.

"Today's discussion is part of the process of finding an answer to the question of how to change finance so that one failure becomes not a permanent exclusion but an opportunity to try again," Shin said. "We will pursue innovation-based inclusive finance without wavering."