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Policy loans to be expanded for people with mid-level creditworthiness

The financial regulator said Tuesday it will allow mutual savings banks to extend policy loans to people with mid-level creditworthiness and those who have difficulty borrowing money from banks.

Starting in June, mutual savings banks, such as the Nonghyup and Suhyup banks, will make non-mortgage policy loans worth 200 billion won ($178.3 million) with an annual interest rate of 9 to 14 percent to such people, the Financial Services Commission said in a statement. 

Yim Jong-yong, chairman of the Financial Services Commission, in a file photo. (Yonhap)
Yim Jong-yong, chairman of the Financial Services Commission, in a file photo. (Yonhap)

In South Korea, major banks can charge an annual interest rate of 6 to 9 percent for non-mortgage policy loans, but they impose stricter loan screening.

Savings banks can charge an annual interest rate of 14 to 18 percent.

Yim Jong-yong, chairman of the FSC, said in the statement that policy loans extended by mutual savings banks are expected to help ease an "interest rate blind spot" for people who have mid-level creditworthiness but have to borrow money from savings banks.

Separately, the FSC allows banks and savings banks to expand the policy loans by a total of 800 billion won.

While the FSC is tightening lending rules for mortgage loans to curb household debts, Yim said the regulator will continue to provide policy loans for low-income earners. (Yonhap)

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