Financial Sector Struggles with Political and Government-Issued 'Corona Bills'... "Are We Servants?" (Comprehensive 2)

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

[Asia Economy Reporters Kwangho Lee, Sunmi Park] As the ruling party-driven profit-sharing system increasingly targets the financial sector, the pressure is mounting. Although it is premised on ‘voluntary participation,’ the National Assembly is continuously pushing bills that tighten the grip on financial companies, which is being criticized as an ‘official arm-twisting.’ The financial authorities seem helplessly dragged along by the political populist offensive, which justifies itself as 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.

◆Politics treating financial institutions like punching bags= According to 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 Consumers,’ which requires credit finance institutions to reduce loan interest rates for landlords and for the state to provide interest subsidies.

The core of the bill is that credit finance institutions must lower loan interest rates for landlords who lent money secured by small business owners and commercial buildings, and the state must 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 and equity 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 is consistent 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 flooding similar bills one after another. 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 proposed a ‘Partial Amendment to the Banking Act’ that forces banks to waive even the principal of loans if 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 administrative measures and cuts rent by half during gathering restriction periods. When criticism arose that the COVID-19 damage was being passed on to landlords, Lee also proposed the ‘Tax Stop Act (Restriction of Special Taxation Act).’

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

▲Trend of Won-denominated loan delinquency rates. (=Financial Supervisory Service)

Loan Repayment Deferral Even for Closed Small Business Owners

◆Authorities also issuing ‘pain-sharing notices’= The problem is that not only the political circles but also the 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 extension and repayment deferral measures currently implemented in the financial sector to overcome COVID-19 within this month. Despite opposition from the industry against interest deferral, they have decided to extend the measures once more. Additionally, they have made it possible for loan repayments to be deferred even for small business owners who have closed their businesses.

So far, the total amount of loans with extended maturity in the entire financial sector is 116 trillion won (350,000 cases), principal repayment deferral for installment loans is 8.5 trillion won (55,000 cases), and interest repayment deferral amounts to 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 various support and deferral policies for affected groups, which has actually deferred the recognition of bad debts.

In December last year, the delinquency rate for won-denominated loans at domestic banks fell to a record low of 0.28%. During the same period, the delinquency rate was 0.4% in 2018 and 0.36% in 2019. The delinquency rates of the four major domestic banks?Kookmin, Shinhan, Hana, and Woori?ranged from 0.16% to 0.25%, lower than the 0.24% to 0.35% range in the same period last 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%.

The decline in delinquency rates is analyzed as a visual illusion caused by loan maturity extensions. A financial authority official said, "The COVID-19 loan repayment deferral likely influenced the decline in delinquency rates." Experts also warn that although the asset soundness appears stable for now due to this illusion, careful monitoring is necessary considering the aftereffects following the end of policy support.

Jung Yutak, a researcher at Hana Financial Management Research Institute, diagnosed, "This year, bank soundness will show a denominator effect due to the increase in total loans from expanded financial support by the government and banks, along with a deferred recognition of bad debts caused by 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."

There are also voices criticizing political and government market intervention. 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 am not sure 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.