[Jeongmuwi Emergency Survey] "Financial Firms Under Pressure Undermining Market Logic... Serious Possibility of International Litigation"

Criticism of Ruling Party-Led Financial Sector Pressure
"Financial Firms' Profits Belong to Shareholders"
Also Pointed Out: 'Profit Sharing = Profit Recovery'

[Asia Economy Reporter Kim Hyo-jin] As government and ruling party-driven measures to tighten control over financial companies?such as pressure to participate in profit-sharing schemes, restrictions on financial holding companies' dividends and chairpersons' reappointments, and the introduction of one-sided binding force?surface one after another, experts are voicing growing concerns. They diagnose that such attempts not only undermine market principles but could also provoke backlash from foreign investors, potentially leading to international litigation.

◆Sharp Divisions Between Ruling and Opposition Parties Over Dividends and Profit Sharing = Kim Han-jung, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, stated, "Due to loan maturity extensions and interest deferrals amid the COVID-19 pandemic, there is high uncertainty regarding asset soundness and net income, and nationwide participation is needed to overcome the national crisis," urging restraint on high dividends. This reflects the ruling party's argument that the financial sector's dividend payout ratio should be lowered.

On the other hand, the opposition emphasized shareholder interests. Yoon Doo-hyun of the People Power Party criticized, "Recommendations to reduce dividends are clear examples of government-controlled finance and excessive regulation that hinder autonomous management," adding, "It is contradictory to demand profit sharing while the financial soundness is good but shareholders are prevented from receiving returns." Yoon Chang-hyun from the same party also argued, "With foreign ownership exceeding 50% in major financial holding companies, there is concern about shareholder flight and negative impacts on stock prices."

Regarding restrictions on the reappointment of financial holding company chairpersons, the ruling and opposition parties also sharply disagreed. Kim Han-jung said, "To prevent self-reappointment and strengthen democracy, transparency, and accountability, institutional improvements such as term limits and stricter eligibility screening for major shareholders are necessary." Bae Jin-kyo of the Justice Party took a compromise stance, stating, "If there is a problem, a structure should be created where reappointment is not possible." Conversely, Yoon Chang-hyun argued, "If there is a lack of checks on the chairperson, then checks should be established."

On the issue of the so-called ‘Interest Freeze Act,’ proposed as a method for financial companies to share profits, the ruling and opposition parties showed a tense divide. Kim said, "Since financial institutions faced bankruptcy during the foreign exchange crisis and were rescued with taxpayers' money, it is responsible to temporarily reduce or suspend loan interest for small business owners and self-employed individuals facing difficulties during national crises."

◆Experts: Financial Companies’ Profits Belong to Shareholders, Not the Government = Experts also raised concerns about the ruling party accelerating pressure on financial companies. Lee Byung-tae, a professor of economics at the Korea Advanced Institute of Science and Technology (KAIST), said, "The profits of financial companies belong to shareholders, not the government," pointing out, "Companies already share profits through taxes such as corporate tax, so demanding something more is problematic."

Professor Lee added, "In the past, there was the term ‘Korea Discount,’ which was largely due to various quasi-taxes and regulations," criticizing, "Reversing deregulations and undermining the basic principles of the market economy while infringing on property rights is unacceptable."

Kim Tae-gi, a professor of economics at Dankook University, remarked, "If companies do it voluntarily, that’s one thing, but making it a law turns it into a profit recovery system," meaning that demanding excess profits is essentially equivalent to recovery.

Concerns were also raised about the possibility of investor-state disputes (ISD) triggered by backlash from foreign investors. Professor Kim explained, "Foreign capital is heavily invested in Korean banks," adding, "Since the producers of value are shareholders and workers, unrelated government or political forces demanding money will not be ignored."

Criticism also followed financial holding companies’ successive dividend suppressions under financial authorities’ guidelines. Kim Sang-bong, a professor of economics at Hansung University, said, "This harms shareholder value," questioning, "Are financial holding companies or banks government property?" He further criticized, "With loan principal repayment deferrals for small business owners in place, it is difficult to gauge the extent of losses or defaults, so they are being pushed to excessively increase loss absorption capacity."

Lee Jung-hee, a professor of economics at Chung-Ang University, noted, "Banks’ profits come from numerous consumers struggling due to COVID-19 and poor financial conditions, so banks have also enjoyed some windfall benefits," but advised, "Rather than directly touching issues like dividends, it is necessary to explore solutions on a slightly different level."

◆‘Self-Reappointment’ Issue Exists, But Political and Government Intervention Is Inappropriate = Regarding the issue of chairperson reappointment directly linked to financial holding companies’ governance, voices advocating leaving the decision to the financial holding companies’ boards of directors stand out.

Sung Tae-yoon, a professor of economics at Yonsei University, acknowledged, "There is a problem with the ‘self-reappointment’ practice in parts of the financial sector," but cautioned, "The solution should not be government or political forces forcibly dictating ‘only for a few years.’" He emphasized, "It is important to create an advanced structure that autonomously controls this through the board of directors," meaning the board should be empowered independently to reasonably check leadership under the goal of establishing healthy and rational leadership.

Professor Kim Sang-bong also opposed the ‘self-reappointment’ practice but pointed out, "If terms are limited too short, short-termism may arise, leading to excessive workforce restructuring, so term limits are not a panacea."

Professor Lee Jung-hee explained, "Rather than unconditional restrictions, it is necessary to carefully consider the unique characteristics of the financial industry," adding, "Especially, we must contemplate which measures are more desirable for the stable growth of the financial industry."

Regarding the one-sided binding force proposal that partially deprives financial companies of litigation rights during dispute resolution, Professor Kim Sang-bong said, "Isn’t the financial supervisory authority responsible for failing to properly supervise?" He added, "It is appropriate to keep the supervisory authority’s dispute resolution results non-binding legally and allow court rulings on the matter."

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