Banks had often demanded people line up more than one guarantor if they wanted to borrow money until “joint and several liability” for individuals was abolished in 2008. But lenders still ask the self-employed and corporations that other parties be presented to hold each of them liable to the full amount of the relevant obligation.

This loan practice, however, is set to be scrapped in May. The Financial Services Commission has recently decided to ban joint and several liability ― a practice often cited as a main obstacle to starting up businesses and business expansion by small- and medium-sized enterprises. The ban also applies to Korea Credit Guarantee Fund and Korea Technology Finance Corp. But non-banking lenders, such as insurers and savings banks, will be exempt.

The Financial Services Commission has also decided to require that banks phase out outstanding loans made on condition of joint and several liability during the next five years.

Since the 1997-98 Asian financial meltdown, the Korean government has been putting pressure on banks to expand loans on credit and reduce the portion of loans made on the offer of collateral and joint and several liability. Such a recommendation has also been made by the International Monetary Fund.

But few banks have heeded the advice as their clients want to borrow more money than they can afford to lend. Instead, many demanded not only collateral for a loan but joint and several liability.

One of the consequences of the backward lending practice is that banks have been allowed to neglect honing their credit risk assessment and management skills. Another is that the lending practice has produced a lot of credit delinquents.

Such credit delinquents, who are often figuratively described as “guilty by association,” account for 18 percent of those who have applied to the Credit Counseling and Recovery Service for redemption since 2003. Kim Seok-dong, chairman of the Financial Services Commission, is quoted as saying that the lending practice is a “poisonous fungus” killing the borrower, his father and the father of his wife.

No wonder many of those who want to start up businesses give up when they are asked to name their parents, friends or others close to them as co-promisors. Instead, they choose to seek secure employment by large corporations.

The Financial Services Commission claims that the ban on joint and several liability will have no serious adverse impact on the nation’s financial market. It says it closely consulted on the planned ban with banks before making a final decision. Moreover, it says, they have to compete against one another in their search for creditworthy borrowers because they are now awash with cash.

But these remarks cannot be accepted at face value. Borrowers may have to brace for dwindling credit, as banks are already voicing their concern about what they regard as a sudden change in the lending rules.

True, the ban will certainly encourage people with good business ideas to launch start-ups. It may also encourage small businesses with high credit ratings to borrow money to expand their operations.

But borrowers cannot welcome the ban without reservation, given that banks will be more cautious in lending. Indeed, bank officials are quoted as saying that they are considering tightening their rules on lending, particularly to the self-employed.

One of the measures being considered by banks is to demand additional assets as collateral. Another possibility is that banks will charge borrowers higher interest rates. For their part, banks may have to hedge credit risk by buying credit insurance or credit derivatives. Simply put, it will be more costly and difficult for the self-employed and small- and medium-sized companies to borrow.

It will undoubtedly take time for banks to adapt to the new lending rules. But what is urgently needed is for them is to improve their credit risk assessment and management skills. Korea Credit Guarantee Fund will have to make similar efforts. Korea Technology Finance Corp. is also required to develop skills to accurately evaluate technologies that borrowers own. A freer flow of credit information will certainly help lower borrowing costs.