Top financial regulators are stepping up pressure on creditor banks to push ahead with corporate restructuring. They are urging bank officials to weed out nonviable companies by the end of this year.

Jin Woong-sup, head of the Financial Supervisory Service, stressed the need to speed up the restructuring process when he met with the heads of the nation’s top 10 banks on Tuesday.

Referring to the slowing Chinese economy and the expected increase in U.S. interest rates, he called on the top bank officials to take preemptive action against the looming external risks.

Jin said banks should prepare for external and domestic uncertainties by undertaking corporate restructuring swiftly and setting aside sufficient loan loss reserves.

Lim Jong-ryong, head of the Financial Services Commission, also urged banks to resist the temptation to keep nonviable firms afloat just to avoid a drop in their short-term profits.

Lim said banks should pull the plug on marginal companies to channel their limited resources into more productive firms.

As the top regulators point out, banks are reluctant to weed out zombie companies, especially when their exposures are large, because doing so entails setting aside loan loss reserves, which cut into their profits.

Yet if banks fail to go far enough in removing hopeless firms, it will do harm not only to their own long-term health but to the economy as a whole.

In this regard, regulators are right to push banks to undertake restructuring more thoroughly.

However, when it comes to a more efficient allocation of financial resources, top financial regulators face a far more urgent task.

They need to reform the state-run institutions that provide credit guarantees to small and medium-sized companies and start-ups. These institutions are meant to help firms with limited collateral obtain bank loans more easily.

Credit guarantees should be provided to companies for a limited period of time, otherwise, it becomes difficult for the recipients to wean themselves off the cheaper way to access bank loans.

But in reality, credit guarantees are offered to many companies for a prolonged period. What’s worse, they are provided to nonviable firms, simply helping them stay afloat.

Such abuse not only causes a waste of public funds but, more importantly, does substantial harm to viable companies by subsidizing the operations of their nonviable rivals.

While pressing banks to expedite the restricting process may be necessary, top financial regulators need to fix the credit guarantee system first.