'Corona Bills' Flooding Financial Sector... "Are We Suckers?" (Comprehensive)

Political and Financial Sectors Targeted with 'Official Arm Twist'... "Loan Interest Rates Must Be Reduced"
Financial Authorities Prepare Maturity Extensions and Repayment Deferrals... Repayment Deferrals Also for Closed Small Business Owners
"Excessive Political Intervention in Finance Causes Dysfunction in Autonomy"... Concerns Over Market Confusion

[Asia Economy Reporters Kwangho Lee, Sunmi Park] As the ruling party's profit-sharing system increasingly targets the financial sector, the pressure is mounting. Although it is premised on 'voluntary participation,' the National Assembly is continuously introducing bills that tighten regulations on financial companies, which is being criticized as an 'official arm-twisting.' The financial authorities appear helplessly dragged along by the political populist offensive justified by overcoming the COVID-19 crisis. Experts and even members within the ruling party express concerns that excessive political intervention in finance could undermine the foundation of the market economy order.

Ruling Party Floods Populist Bills Citing COVID-19 Recovery
Profit-Sharing System Targets Financial Companies, Raising Concerns Over Excessive Market Intervention

According to reports from the National Assembly and financial circles on the 9th, Song Young-gil, a member of the Democratic Party of Korea, along with 16 others, proposed the 'Partial Amendment to the Act on Registration of Loan Business and Protection of Financial Users,' which requires credit finance institutions to reduce loan interest rates for landlords and for the government to provide interest subsidies.

The core of the bill is that institutions must lower loan interest rates for landlords who lend money secured by small business owners and commercial buildings, and the government should share the business risk by providing financial support such as interest subsidies amounting to 50% of the reduced interest.

They stated, "There is an opinion that it is unfair and against the principle of loss-bearing for only small business owners and self-employed individuals to bear the social losses arising from overcoming national disasters such as infectious diseases," and added, "It aligns with the concept of justice that not only the state responsible for overcoming the disaster but also all members of society and economic agents share the burden together."

The ruling party has been continuously introducing similar bills. On the 4th, Assemblyman So Byung-chul jointly proposed a 'Partial Amendment to the Small Business Basic Act' aimed at reducing rent and loan interest in addition to business compensation.

Assemblyman Min Hyung-bae of the same party also introduced a 'Partial Amendment to the Banking Act' that forces banks to waive even the principal of loans when self-employed individuals suffer damage from disasters such as COVID-19.

Earlier, Assemblyman Lee Dong-joo proposed the so-called 'Rent Stop Act,' which fully reduces rent payable by tenants when a gathering ban is imposed due to COVID-19 quarantine administrative measures and cuts rent by half during restricted gathering periods. When criticism arose that the COVID-19 damage was being passed on to landlords, Lee also proposed the 'Tax Stop Act (Special Tax Treatment Control Act).'

Assemblyman Lee Sung-man proposed a bill that prohibits landlords from charging more than 50% of rent to self-employed individuals in special disaster areas or regions under gathering bans under the Disaster Basic Act, and Assemblyman Yoon Jun-byeong introduced an amendment legally specifying the right of self-employed individuals affected by COVID-19 to request a reduction in commercial rent.

Stores on Myeongdong Street in Jung-gu, Seoul, where the number of confirmed cases of the novel coronavirus infection (COVID-19) has been recording triple digits daily, are posting closure notices and shutting down./Photo by Kang Jin-hyung aymsdream@

Authorities Also Issue 'Pain-Sharing Notices'... "Extend Maturities for Closed Small Businesses Too"
Dividend Reduction Recommendations and Re-Extension of COVID-19 Loan Maturity Extensions and Interest Deferrals

The problem is that not only the political sphere but also financial authorities are issuing increasingly stringent 'pain-sharing notices' to financial companies every day. The Financial Services Commission plans to announce a smooth landing plan for the maturity extension and repayment deferral measures currently in place to overcome COVID-19 within this month. Despite opposition from the industry against interest deferral, the plan is to extend the measures once more. Additionally, even closed small businesses will be allowed to defer loan repayments.

So far, the total amount of maturity extensions for lump-sum repayment loans across the entire financial sector is 116 trillion won (350,000 cases), principal repayment deferrals for installment loans amount to 8.5 trillion won (55,000 cases), and interest repayment deferrals total 157 billion won (13,000 cases). Although small and medium-sized enterprises and small business owners were directly hit by the COVID-19 spread last year, the asset soundness of banks appears to have improved due to the deferral policies supporting various affected groups, which has postponed the recognition of bad debts.

The delinquency rates of the four major domestic banks?Kookmin, Shinhan, Hana, and Woori?were between 0.16% and 0.25% in the fourth quarter of last year, down from 0.24% to 0.35% in the same period the previous year. The ratio of non-performing loans (NPLs), which are at high risk of default, is also trending downward, with Kookmin Bank at 0.41% and Hana Bank at 0.34%. Experts warn that although asset soundness appears stable now due to this illusion, careful monitoring is necessary considering the aftereffects following the end of policy support.

Jeong Yutak, a research fellow at Hana Financial Management Research Institute, diagnosed, "This year, bank soundness will show a denominator effect due to increased loan volume from government and bank financial support, along with deferred recognition of bad debts due to loan maturity extensions and interest repayment deferrals. Factors worsening bank soundness are widespread, with the proportion of marginal companies expected to exceed 20% due to COVID-19."

Criticism of political and government market intervention is also emerging. Professor Sung Tae-yoon of Yonsei University's Department of Economics bluntly stated, "Excessive political intervention in finance shakes the market economy order and can cause dysfunction in autonomy." A senior Democratic Party lawmaker expressed concern about market confusion, saying, "I don't know if it is right to prevent banks from collecting principal and interest on loans."

This content was produced with the assistance of AI translation services.