Policy Finance Contributions Near 1.5 Trillion Won in Four and a Half Years, Increasing Pressure on Financial Firms

Financial companies in South Korea paid almost 1.5 trillion won over four and a half years to support policy finance for low-income borrowers. The figure is adding to concern that the burden on the financial sector is growing faster than the loans themselves.

Data submitted by the Korea Inclusive Finance Agency to Rep. Park Sung-hoon of the People Power Party showed that total contributions reached 1.4797 trillion won from 2022 through June. Banks paid 709.9 billion won, or 48% of the total. Mutual financial institutions contributed 380.7 billion won, savings banks 211 billion won, insurers 100 billion won and specialized credit finance companies 83.9 billion won.

Bank contributions rose from 107.8 billion won in 2022 to 216.2 billion won last year. That represented a 67.5% increase in one year. KB Kookmin Bank paid the most among individual banks, at 115.1 billion won, followed by Shinhan Bank at 95.8 billion won and NH NongHyup Bank at 84.9 billion won. Among internet-only banks, KakaoBank led with 38.3 billion won, ahead of Toss Bank and K Bank.

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There can be no disagreement over strengthening the financial safety net for low-income and vulnerable groups, but we need to examine whether collecting more money from financial companies whenever losses grow is a sustainable solution.

Financial firms pay common and differential contributions under the Inclusive Finance Act. The common payment is calculated from household-loan balances, while the differential payment reflects factors including cases in which guarantee institutions repay debts after policy-finance borrowers defaulted. A rules change in April raised the common rate from 0.06% to 0.1% for banks and from 0.03% to 0.045% for non-bank firms.

Policy-finance supply rose from 5.1648 trillion won in 2022 to 6.4124 trillion won last year, a 24.2% increase. Contributions increased 91.5% over the same period. Park said strengthening the financial safety net for low-income and vulnerable people was necessary, but questioned whether repeatedly collecting more from financial companies to cover rising losses was sustainable. He warned that higher costs could eventually be passed on to financial consumers.

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An increase in financial companies’ costs could ultimately be passed on to financial consumers.