Banks to Pay 100 Billion Won Annually... Will the Servant Finance Act Signal the Start of a Profit-Sharing System?

The plenary session of the National Assembly's Political Affairs Committee. Photo by Dongju Yoon doso7@

[Asia Economy Reporter Kiho Sung] The National Assembly's Political Affairs Committee has approved the "Amendment to the Act on Support for Financial Life of Ordinary People (Ordinary People’s Finance Act)" through bipartisan agreement. This bill includes provisions requiring banks to pay annual contributions in the range of 100 billion KRW to secure funding for the supply of financial products for ordinary people, such as the Sunshine Loan (Haetsal Loan). There are concerns that this could be the starting signal for the profit-sharing system promoted by the ruling party, causing deep apprehension among banks.

According to political circles on the 20th, the Political Affairs Committee held the first subcommittee meeting on the 17th and approved the amendment. The bill is scheduled to go through the full Political Affairs Committee meeting on the 24th, followed by submission to the National Assembly’s Legislation and Judiciary Committee and the plenary session.

The amendment includes provisions to make the contributions from financial companies, which serve as credit guarantee funds for the Korea Inclusive Finance Agency (Seogeumwon), a permanent system. It also expands the scope of financial companies subject to contribution fees from the current mutual finance cooperatives and savings banks to all financial companies handling household loans, including banks, insurance companies, and specialized credit finance companies. The contribution rate is being discussed at around 0.03% of the outstanding household loan balance.

If this bill passes, the financial burden on commercial banks is expected to increase further. Based on calculations as of the end of 2019, the contribution amount from the banking sector reaches approximately 100 billion KRW. Moreover, as the outstanding household loan balance increases, the amount to be contributed is also expected to grow.

The banking sector’s concern stems from the expectation that this Ordinary People’s Finance Act will be the starting point for the profit-sharing system. They also express incomprehension over the policy requiring them to bear funding burdens for products they do not even handle.

A banking industry official said, "If the bill passes, each bank is expected to contribute about 20 billion KRW," adding, "Given the economic crisis exacerbated by COVID-19, paying mandatory contributions is inevitably burdensome."

The Financial Services Commission explains that the amendment to the Act on Support for Financial Life of Ordinary People is not a profit-sharing system but a matter that has already undergone several consultations, aimed at expanding financial support for ordinary people. The reform of the financial company contribution system included in the amendment was already announced in December 2018 as part of the "Plan to Reform the Support System for Ordinary People’s Finance," and the financial sector has been consulted multiple times regarding the contribution method and scale.

However, the banking sector’s anxiety remains. Another banking official pointed out, "It is about contributing funds for products that banks do not even handle, so it is difficult to find logical grounds for the law’s enforcement unless it is a profit-sharing system in practice," adding, "Given that financial companies have been advised to refrain from dividends to secure cash in preparation for COVID-19, taking that amount is almost the same, making it difficult to understand."

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