Financial sector to channel W4.5tr to SMEs in non-capital regions over 3 years

South Korea's financial sector will supply 4.5 trillion won ($3.37 billion) in guaranteed loans to small and medium-sized enterprises and mid-sized companies in the country's five major regional hubs and three special autonomous regions, as part of the government's productive finance initiative.

The Financial Services Commission held the sixth Productive Finance Transformation meeting Monday afternoon at the Korea Federation of SMEs headquarters in Yeouido, Seoul, where it finalized a plan to supply guaranteed loans to key small and mid-sized firms in those regions.

At the meeting, 16 banks, the Korea Credit Guarantee Fund and Korea Technology Finance Corporation signed a memorandum of understanding to support key small and mid-sized companies in the designated regions.

Under the agreement, banks will make a combined 300 billion won special contribution to the two guarantee institutions over three years. The Korea Credit Guarantee Fund and Kibo will in turn supply guaranteed loans at roughly 15 times the contributed amount and screen eligible companies. The arrangement is expected to channel 4.5 trillion won in low-interest guaranteed loans over the three-year period.

Local governments, which have direct knowledge of regional conditions, will also recommend key companies and participate in interest rate subsidy programs using local budgets.

"The interest rate will be lower than that of general working-capital loans," an FSC official said. "The final rate reduction will depend on how much budget local governments commit to the subsidy program."

The government plans to solicit applications from 14 cities and provinces outside the greater Seoul metropolitan area. Selections will be made with balanced representation across the five regional hubs and three special autonomous regions, with funding amounts differentiated based on each local government's program capacity and regional conditions.

The top three cities or provinces will each receive 450 billion won. Those rated "excellent" will receive 350 billion won each, while those rated "average" will receive 280 billion won each.

The FSC plans to form a separate evaluation committee composed of experts from government, the banking sector and academia to conduct a comprehensive assessment, including how well applicants align with policy objectives.

To encourage active bank participation, the FSC also plans to count guaranteed loan supply performance as a bonus item in regional reinvestment evaluations.

The FSC expects about 9,000 regional small and mid-sized companies to receive guaranteed loans through the program, with disbursements set to begin no later than January next year. "Based on 2025 figures, the average guaranteed loan per company through the Korea Credit Guarantee Fund is around 480 million won," Shin Jang-su, head of the FSC's banking division, said at a briefing Monday. "We cannot extend guaranteed loans to companies without repayment capacity, so we will screen applicants carefully."

FSC Chairman Lee Eok-won, in opening remarks at the meeting, said expanding the regional growth base and achieving balanced national development are urgent priorities. "We expect the 4.5 trillion won in guaranteed loans, funded through the banks' special contributions over the next three years, to serve as seed money that actively fills the gaps in regional finance that market forces alone cannot address," Lee said.

Meanwhile, the FSC is preparing a liability exemption framework to encourage banks to expand productive finance lending. A plan to apply exemption standards modeled on the National Growth Fund to various government-led funds is also under active consideration.