[Column] Excessive Twisting of Arms in the 'Financial Sector Profit Sharing System'

[Asia Economy Reporter Kwangho Lee] "How can banks and insurance companies that do not even handle low-income financial products be burdened with funding? Ultimately, the profit-sharing system we feared is becoming a reality." Financial companies are openly expressing dissatisfaction as the amendment to the "Act on Support for the Financial Life of Low-Income People" (Low-Income Financial Support Act), regarded as the so-called 'financial sector profit-sharing system,' has passed the National Assembly hurdle.

The National Assembly's Political Affairs Committee, on the 17th, approved the Low-Income Financial Support Act, which aims to make the financial company contributions that serve as the credit guarantee funds for the Korea Inclusive Finance Agency permanent, through bipartisan agreement at the first subcommittee for bill review. The amendment is expected to proceed to the full Political Affairs Committee meeting scheduled for the 24th, then to the Legislation and Judiciary Committee, and finally to the plenary session.

Once the amendment passes, the scope of financial companies subject to contribution fees will expand to all financial companies handling household loans. Banks, insurance companies, and credit-specialized companies will have to pay about 0.03% of their household loan balances as contributions, just like savings banks and mutual finance cooperatives. As of the end of 2019, the banking sector will bear about 105 billion KRW annually, the credit-specialized sector 18.9 billion KRW, and the insurance sector 16.8 billion KRW. In total, about 200 billion KRW will be collected annually from the financial sector. Above all, the amount to be contributed is expected to increase as household loan balances grow. Financial companies complain that this is a one-sided "arm-twisting." A bank official argued, "Isn't forcing us to bear a burden even though we are not the bank's customers essentially the same as sharing profits?"

The Financial Services Commission is jumping up in protest. They state that the reform of the financial company contribution system was announced in December 2018 as part of the "Plan to Reform the Low-Income Financial Support System." They claim to have consulted multiple times with the financial sector regarding the contribution method and scale. They also describe it as "voluntary participation." However, the financial sector is quietly suffering, saying it is an unavoidable participation with strong coercion.

It is true that financial companies are required to bear greater social responsibility than other businesses. But excessive demands inevitably cause problems. Financial companies have all responded to government and political demands such as the Korean New Deal and the extension of COVID-19 financial support. On top of that, they are being forced to sacrifice beyond the basic market economy principle of receiving interest. It is doubtful whether the profit-sharing system is truly a pain-sharing measure for low-income people or just a political move to gain votes.

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