South Korea’s central bank said Monday that it will establish a 1 trillion won ($890 million) special credit line for small and medium enterprises in a bid to spur local lenders to increase loans to them.

The move by the Bank of Korea, slated to take effect on April 2, comes as local banks remain reluctant to provide unsecured loans to SMEs with insufficient collateral.

“The new credit line is designed to help high-risk smaller firms take out bank credit loans more easily,” a BOK official said.

As of October 2011, big corporations accounted for 71.2 percent of local lenders’ credit loans with SMEs taking up the remainder, he said.

Under the special credit line, the BOK will allot funds to commercial lenders, depending on the amount of unsecured loans they extend to SMEs.

South Korean financial institutions have been beefing up risk management this year on cautions that debt woes from Europe may spread to Asia’s financial markets. Their conservative management, however, took a toll on lending to poor-credit SMEs than to big corporations.

In a bid to prevent the newly added loans from stoking consumer price gains, the 1 trillion won will come from the BOK’s 7.5 trillion won soft-loan program this year, the central bank said. 

(Yonhap News)