This content is from: Local Insights

Credit guarantee funds

On January 29 2007, the Ministry of Finance and Economy (MOFE) in Korea announced a proposed amendment to the regulations under the Credit Guarantee Fund Act, the Technology Credit Guarantee Fund Act and the Agricultural and Fisheries Business Credit Guarantee Act.

Under the proposed amendment, Korean banks and Korean branches of foreign banks will be required to make contributions to the Credit Guarantee Fund, the Technology Credit Guarantee Fund and the Agricultural and the Fisheries Business Credit Guarantee in respect of the loans, the scope of which has been substantially increased to encompass not only the Korean won-denominated loans but also foreign currency-denominated loans, private placement bonds, commercial papers and others.

In an effort to avoid placing excessive financial burdens on the banks in light of the above change, the rate of contribution (expressed as a percentage of the total outstanding loan amount) required to be made in respect of the Credit Guarantee Fund and the Technology Credit Guarantee Fund will be reduced from 0.40% a year to 0.36% a year. Considering the additional contribution of 0.02% a year required to be made in respect of the Local Credit Guarantee Foundation, the overall rate of contribution applicable to the banks will be reduced from 0.42% to 0.38%. (Unlike in the case of the Credit Guarantee Fund and the Technology Credit Guarantee Fund, the applicability of the Local Credit Guarantee Foundation is still limited to the Korean won-denominated loans only.)

On the other hand, the rate of contribution required to be made in respect of the Agricultural and Fisheries Business Credit Guarantee which is applicable to National Agricultural Cooperative Foundation (Nonghyup in Korean) and National Federation of Fisheries Cooperatives (Suhyup in Korean) will be increased from 0.30% to 0.38%, with a view to making the rate more in line with that applicable to the banks.

According to the MOFE, it is expected that as soon as the amendment becomes effective, the contribution requirement would be immediately applicable to the outstanding amount of applicable Korean won or US dollar loans and private placement bonds held by the banks.

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