The Lending Behavior Regarding On-Lending-Typed SME Policy Loan: Evidence from Korean Banks

This study examines the effects of selected hypothetical factors on lending behavior of Korean commercial banks in providing SME policy loan. Compared with previous studies analyzing the lending behavior in private SME financing market, the current study focuses on the lending behavior on SME policy loan in terms of checking significances on existence of pro-cyclicality and effects of risk level, financial status of banks, and regulations of the financial authority. The main findings are as follows. First, there exists pro-cyclicality in SME policy loan market regardless of lending period. Second, the credit risk level Korean banks feels plays a significant role in lending behavior on SME policy loan with negative direction. Third, the difference of lending behavior on financial status is dependent on the lending period as Craig, Davis, Pascual (2006) insisted. Fourth, the pressure of capital regulation is also pivotal factor in lending decision with negative direction. Fifth, making SME policy loan is determined differently by the ownership type of banks, and state banks provides SMEs policy loan more actively than does private banks. As a concluding remark, there are steps to be upgraded into new financial supports to SMEs corresponding to policy purpose of government as Yoon, Park, Chung (2014) recently pointed out.