Controversy Over Financial Promises of Ruling and Opposition Presidential Candidates Shaking Up the Financial Sector (Comprehensive)

Rising Tensions in the Financial Sector Ahead of the Presidential Election
Lee Jae-myung's Basic Loan... "A Policy Ignoring the Essence of Finance"
Yoon Seok-youl's Loan Regulation Easing... "Concerns Over Household Debt Defaults"

[Asia Economy Reporter Kim Jin-ho] In March next year, ahead of the 20th presidential election, tension is rising in the financial sector. This is because unexpected ‘pledge controversies’ are emerging, ranging from basic loans that ignore the essence of finance to the relocation of outdated public financial institutions to local areas and the full relaxation of loan regulations. Depending on who wins, the fortunes of financial authorities and financial companies are expected to diverge.

According to political and financial circles on the 16th, the most controversial financial pledge is Lee Jae-myung, the Democratic Party candidate’s basic finance policy. The basic finance pledge is centered on providing long-term (10 to 20 years) low-interest loans of up to 10 million won to all citizens regardless of credit rating. It is similar to a type of overdraft account that can be freely used at any time during the maturity period.

Candidate Lee’s financial philosophy is to guarantee basic loan rights to low-credit individuals to alleviate financial inequality in our society. At an invited lecture on the 7th, Lee said, "It is not fair that poor people pay high interest while the rich can borrow at low interest for a long time," criticizing the financial sector.

However, there are growing concerns in the financial sector about Lee’s representative pledge. The basic principle of finance is to lend money based on creditworthiness and to differentiate interest rates as compensation for taking on more risk, but the concept of basic loans thoroughly shakes this principle. A financial sector official pointed out, "I think this is a financial policy that ignores the essence of finance," adding, "Lending money at low interest for a long time to those who may have difficulty repaying is close to a populist pledge."

Professor Seo Ji-yong of Sangmyung University’s Business Administration Department also criticized, "If loans are given at low interest rates for a long period to borrowers with relatively high risk, there are concerns about insolvency from the perspective of bank soundness."

Yoon Seok-youl, the People Power Party candidate, has consistently called for the relaxation of loan regulations, but concerns have been raised that this could undermine financial market stability next year. This is because Yoon proposed a drastic financial support measure, such as easing the Loan-to-Value ratio (LTV) to a maximum of 80% when announcing his real estate policy.

Yoon believes that the sudden and excessive regulations of the Moon Jae-in administration caused side effects, but the financial sector expects Yoon’s pledge to also have a significant impact on the market. In particular, if the LTV is relaxed to 80%, there is a high possibility of a surge in housing prices and loans. Another financial sector official predicted, "If the loan regulations that were tightened this year are loosened next year, it could become much more difficult for financial authorities to manage soaring household debt."

Public financial institutions such as policy banks are trembling at the talk of ‘relocation to local areas.’ Candidate Lee pledged to relocate all 200 or so public institutions in the metropolitan area to local areas if elected. This includes KDB Industrial Bank, Korea Eximbank, and IBK Industrial Bank. However, considering the special nature and operational efficiency of public financial institutions, relocation to local areas raises concerns about ‘weakening competitiveness.’ It is analyzed that the disadvantages outweigh the benefits of balanced development.

Professor Lee Min-hwan of Inha University’s Global Finance Department pointed out, "If institutions with central functions such as the Financial Services Commission or the Financial Supervisory Service do not move together, the effect will be extremely limited," adding, "In places without established financial infrastructure, there is a high risk of a direct hit to competitiveness."

Meanwhile, financial authorities are also paying close attention to the presidential election results. The direction of reform in the financial supervisory system could subtly change depending on who becomes president. Both candidates Lee and Yoon agree that the current financial supervisory system, maintained for 13 years since 2008, needs change. Lee’s side advocates for the dismantling of the Financial Services Commission, while Yoon’s side proposes unifying the Financial Supervisory Service’s policy and enforcement functions.

However, there is also an analysis that the issue of reforming the financial supervisory system arises every time there is a change of government. Financial Services Commission Chairman Ko Seung-beom said at a National Assembly audit in October, "It has been 13 years since the Financial Services Commission was launched in 2008, and there is no perfect organizational system. Since supervisory systems differ by country, rather than constantly changing, it is necessary to maintain the current system and foster a practice of organic cooperation."

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