Analysis of the Current Status of Policy Financing Provided by Public Financial Institutions

Published on June 10, 2022
Published by Public Institution Evaluation Division

   As part of the recent fiscal policy efforts to respond to the COVID-19 pandemic, the government increased the supply of policy financing. This is not the first time the government has decided to expand the availability of policy financing. In fact, when economic crises, such as the 1997 Asian Financial Crisis and the 2007 Global Financial Crisis swept the nation, the government promoted similar measures and they were offered mostly by public institutions responsible for lending policy financing.
   Policy financing institutions, which are becoming increasingly important in different areas, are described in various terms and scopes. For this reason, in this report, for analytical purposes, policy financing institutions were defined as public financial institutions, under the Act on the Management of Public Institutions that primarily engage in financial tasks.
   In addition, the overall status of the policy financing availability offered by these public financial institutions as well as that of government support provided to these public financial institutions were analyzed. Based on the findings and issues following the analysis, appropriate approaches for the government to extend policy financing were identified.
   First, analysis of policy financing extended by public financial institutions illustrated that; first, in terms of areas of financial support (SMEs, exports, development, housing, and microfinance), increases occurred mainly in the areas of housing and SMEs, and as for housing finance, considering recent rapid expansion, managing soundness of related public institutions is required. In other words, the balance (1,647.2 trillion won) of the amount of annual financing extended through public financial institutions increased by 984.5 trillion won (148.6%) compared to 2011 (662.7 trillion won). Of that amount, housing finance increased by 620 trillion won (increase rate of 412.2%), while SME financing increased by 222.3 trillion won (increase rate of 98.0%). Second, when analyzing each support method (mortgages [loans], guarantees, insurance, investments), given that the proportion of supply through guarantee had increased, concrete financial soundness management plans in response to the recent COVID-19 crisis need to be formulated for guarantee financial institutions. Third, analysis by government ministries in charge indicates, that as for the SMEs, exports, and housing finances, loans are extended by public financial institutions with different government ministries in charge; thus, continued consultations between the relevant ministries and financial public institutions should occur when offering relevant financial loans.
   Furthermore, the government provided a total of 47.6 trillion won to public financial institutions between 2013 and 2022. In its efforts, the government is continuing to support public financial institutions to help with policy financing towards SMEs, microfinance, housing, and other industrial developments & fostering, and export/import promotion. Therefore, measures to efficiently achieve the objectives of budget support for these public financial institutions should be devised.