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"Signal of Profit-Sharing System" Complaints

Financial Services Commission Chairman Eun Sung-soo attended the full meeting of the National Assembly's Political Affairs Committee on the 17th and spoke with Koo Yoon-chul, Director of the Office for Government Policy Coordination, before the meeting began. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Park Sun-mi] As the 'Amendment to the Act on Support for the Financial Life of the Underprivileged,' which expands contributing institutions to secure funds for low-income finance, passes the National Assembly hurdle, controversy is growing that it signals the start of a profit-sharing system in the financial sector. The Financial Services Commission, which has been working on the amendment, stated that it is separate from the profit-sharing system and that the amendment will have a significant effect in supplying new policy low-income financial products.

On the 17th, the National Assembly's Political Affairs Committee held a bill review subcommittee and approved the 'Amendment to the Act on Support for the Financial Life of the Underprivileged,' which expands contributing institutions to secure funds for low-income finance. Since the ruling and opposition parties agreed in the bill subcommittee, the amendment will go through the full Political Affairs Committee meeting scheduled for the 24th, then the Legislation and Judiciary Committee review, and finally be processed in the plenary session.

According to the amendment, banks, insurance companies, etc., like existing savings banks and mutual finance institutions, must contribute up to 0.03% of household loan balances as contributions. This means that the banking sector will have to contribute about 100 billion KRW annually. As the institutions required to contribute to low-income finance expand, about 200 billion KRW in funds can be secured annually.

This regulation will apply for five years starting this year, and the financial sector views this as a signal for the profit-sharing system. In an already low-interest, low-growth phase where making profits is difficult, having to contribute a fixed amount every year is seen as a considerable burden.

However, the Financial Services Commission explains that the amendment to the Act on Support for the Financial Life of the Underprivileged is not a profit-sharing system and is a matter that has already been discussed several times, reflecting the need to expand low-income finance. The reform of the financial company contribution system included in the amendment was announced in December 2018 through the 'Plan to Reform the Low-Income Financial Support System,' and the financial sector has been consulted multiple times regarding contribution methods and scales.

The Financial Services Commission expects that once the amended law is enforced, not only existing savings banks and mutual finance institutions but also banks, credit finance companies, and insurance sectors will be able to supply new policy low-income financial products based on guarantee funds prepared by combining financial company contributions and government contributions.

A Financial Services Commission official said, "In the future, financial sectors will directly design policy low-income financial products, and the Korea Inclusive Finance Agency will provide guarantees, enabling the release of various products tailored to the characteristics of each sector," adding, "Through the amendment to the Act on Support for the Financial Life of the Underprivileged, it is expected that the convenience of financial use for the underprivileged will be enhanced by supplying various products using the guarantees of the Korea Inclusive Finance Agency across diverse financial sectors."

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