A quarter of South Korean small businesses were forced to buy financial instruments after borrowing money from banks, survey by the country's financial regulator showed Friday.
According to the poll by the Financial Services Commission (FSC) on 359 small companies, around 25 percent of respondents said that they experienced forced purchases of financial products after making loans at banks.
Small companies and people with low credit rating, which have low bargaining power, are forced by banks to buy their financial products such as bancassurance and other deposit products when borrowing money from banks.
"Executives and staff members and their families have been induced to buy financial products, including fund and insurance products as well as deposits," Lee Byung-rae, head of financial services bureau at the FSC, told reporters.
To curb the illegitimate pressure to buy financial products, the regulator planned to strengthen its monitoring of such practices, while toughening the so-called 1 percent rule.
According to the rule, if small firms buy financial products worth more than 1 percent of loans made from banks, it is regarded as illegitimate purchases of financial products and punished by the regulator.