200 Billion KRW Annual Emergence of Microfinance Over 5 Years... Banks Complain of "Cost Shifting" (Comprehensive)

Financial Services Commission Announces Legislative Notice on the Act Supporting Financial Life of Ordinary Citizens

[Asia Economy Reporter Kim Jin-ho] The political and financial authorities have mandated that from October this year, they will contribute over 200 billion KRW annually to funds for low-income financial services as part of the 'profit-sharing system.' This initiative is driven by the principle that "banks should contribute to low-income financial services in proportion to the profits they earn from household loans," but the banking sector is increasingly voicing concerns that "this is a problem that should be resolved through taxation, yet it is being shifted onto private companies."

On the 8th, the Financial Services Commission announced a draft amendment proposing that all financial sectors contribute 0.03% of their outstanding household loan balances to policy low-income financial funds.

According to the amendment, the scope of financial companies subject to contribution fees, which serve as the funding source for credit guarantees by the Low-Income Financial Promotion Agency, will be expanded from the current mutual finance cooperatives and savings banks to include all financial companies such as banks, insurance companies, and specialized credit finance companies.

The contribution rate has been set at 0.03%. The banking sector will bear approximately 105 billion KRW, while the credit finance sector (about 18.9 billion KRW) and insurance sector (about 16.8 billion KRW) will also share the burden. The total amount across all financial companies is about 200 billion KRW. Additionally, regarding contributions related to guarantee usage, a differential rate (0.5% to 1.5%) will be applied to each financial company based on the subrogation payment rate (the ratio of subrogation payments to financial company contributions) on the guarantee balance. These regulations will be applied for five years starting this year.

The banking sector, which will bear an additional burden of over 100 billion KRW for low-income financial resources, has mixed feelings. There is skepticism about whether it is appropriate for private banks to bear financial responsibility to support the government's low-income financial policies.

A representative from a commercial bank said, "I question whether it is right to require banks to contribute part of their profits to low-income financial funds just because they earn substantial profits," adding, "While I understand the intention that private companies should support the government's low-income financial policies, I do not believe that expanding contributions is the only solution."

Negative opinions have also been raised regarding the 'Haetsal Loan Bank' that banks will start handling from mid-August. Following the amendment to the Low-Income Financial Act, banks will launch a new policy low-income financial product called 'Haetsal Loan Bank.' Another commercial bank official said, "From the bank's perspective, the more we handle it, the more losses we incur," explaining, "There are many delinquencies and significant post-management burdens." He added, "Ultimately, the core of the amendment seems to be a structure where banks contribute funds and end up shouldering high-cost products."

There are also doubts about the five-year sunset clause. Although funds are being raised through bank contributions, it is unlikely that the burden will simply disappear after the system ends in five years.

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