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FSC widens its standards for loan collateral

Intellectual property and future sales will be accepted as assets
May 24,2018
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Financial Services Commission Chairman Choi Jong-ku attaches a gadget that monitors the locations of machinery used as loan collateral at the Korea Machinery Auction and Exchange in Siheung, Gyeonggi, on Wednesday. [YONHAP]
Korea’s financial regulator said on Wednesday it will allow a wider range of assets, including intellectual property, to be used as collateral for loans. The move is aimed at helping small businesses secure loans, and the government will provide 1.5 trillion won ($1.4 million) to support the policy.

Machinery, inventory, raw materials and electronic appliances are typically referred to as movable assets, and banks have strict criteria for their use as collateral against loans. But the Financial Services Commission (FSC) said on Wednesday that it will ease those regulations by accepting different ranges for movable assets.

“Moveable assets could act as an efficient source of financing for small and medium-sized companies with lower credit ratings and less collateral,” said Choi Jong-ku, the head of the Financial Services Commission.

“To increase moveable asset-based financing, [the regulator] will expand infrastructure and incentives,” he said.

Currently, raw materials and machines are allowed to be used as collateral, and now intellectual property as well as a company’s claims on future sales will be able to be used as well.

The regulator will also require banks to accept different industry players as borrowers, as now, the primary users of moveable collateral are manufacturers.

All industries, including the retail and service sectors, will be able to apply for loans secured with movable collateral.

Smaller companies, in particular, could benefit from the move, as the revised standard for movable assets include a large portion of their assets.

Movables account for 38 percent of all assets owned by small and medium-sized enterprises, and property makes up 25 percent of those assets.

Only 0.05 percent of their movable assets were used as collateral, the FSC said.

The value of corporate loans based on movable assets stood at 250 billion won ($231.8 million) at the end of 2016.

As for infrastructure, the Financial Services Commission will promote the use of technology such as the Internet of Things and big data to assess and monitor the state of assets.

Choi demonstrated an Internet of Things device that manages moveable collateral on Wednesday at the headquarters of the Korea Machinery Auction & Exchange in Gyeonggi.

Financial authorities said they would inject 1.5 trillion won in the moveable collateral market over three years with an aim of expanding its size to 3 trillion won in 2020 and 6 trillion won in 2022.

The Industrial Bank of Korea will provide 1 trillion won in loans based on machinery and inventory. The Korea Credit Guarantee Fund, a state-owned body, will offer 50 billion won worth in loans that can be secured with moveable assets.


BY PARK EUN-JEE [park.eunjee@joongang.co.kr]