Expectations are rising for the second financial sector, including savings banks and card companies, due to policies such as the 'bad bank' being discussed by the new government and the cap on platform fees. The bad bank for debt relief could serve as a channel to sell non-performing real estate project financing (PF) loans that the second financial sector has been struggling with like a long-overdue homework assignment.
According to the financial sector on the 13th, the Financial Services Commission is preparing to establish a bad bank for the adjustment and forgiveness of COVID-19 loans. On the 5th, it announced plans to change the regulations regarding the management of personal financial claims and the protection of individual debtors, which include allowing the purchase of bonds by non-profit organizations.
The bad bank envisioned by the new government focuses on households and self-employed individuals, rather than corporations and restructuring as in previous approaches. While the specifics of the policy support entities and scope have not been clarified, it appears that the government will finance the acquisition of non-performing assets and claims from self-employed individuals and multi-debtors that have increased during the pandemic.
The savings bank industry expects to play a positive role in revitalizing the sale of non-performing loans when the bad bank is established. While the bad bank itself will not directly purchase non-performing PF loans, the logic is that if the bad bank absorbs household non-performing loans, it will create more capacity for specialized firms currently handling non-performing loans to absorb PF non-performing loans. Additionally, since household debts of savings bank customers will also be forgiven, it could benefit relatively sound lending operations.
Until now, the second financial sector has struggled with non-performing loan sales, leading to the establishment of joint investment funds by savings banks, subsidiaries for disposing of non-performing loans (NPLs), and financial holding company affiliates such as Hana F&I and Woori F&I. Policy incentives through grants are also possible. When the bad bank is established, financial firms are required to contribute a substantial amount, and this will be used for financing, meaning that savings banks can also expect tax benefits regarding their contributions.
The card industry, grappling with arrears rates, is viewing the bad bank positively. However, the industry's focus is more on the platform fee regulation policy than on the bad bank. The key aspect of the policy is whether the regulated intermediary fees paid by merchants to delivery app companies will also include the payment fee rates from easy payment companies. This is because, similar to the card companies' fee rate policies, a qualified cost assessment system could be introduced in the easy payment market as well.
The government has generally not intervened in the industry's fee-setting process, except for indicating a tightening of regulations on the disclosure of easy payment company fee rates. Instead, it has minimized policy interventions to enhance the growth of fintech while encouraging industry self-regulation. However, the card industry argues that fintech companies should be subject to the same regulations since they perform similar functions in the payment sector.
The card industry has faced profitability impacts due to qualified cost reassessments over the past few years. The qualified cost reassessment analyzes the funding costs, risk management costs, general administrative, and marketing expenses of card companies every three years, adjusting the fee rates for favorable merchants based on the costs of merchant fees. Financial authorities have reduced fees five times from 2012 to last year, and card companies have seen significantly reduced revenues from credit sales.
In contrast, the fintech and easy payment/electronic payment agency (PG) industries claim there are significant differences in the fee rate systems between card companies and easy payment companies. They explain that the card companies' favorable fee rates, which the authorities adjust every three years, apply to offline merchants, while the easy payment company fee rates apply to online companies, making direct comparisons impossible.
A card industry representative noted, "We do not know how the government's policy on platform fees will turn out, but the industry believes that the principle of equal work, equal regulation is correct. The self-regulation encouraged by the government has not had significant meaning. The fintech companies currently in charge of payment processing have continuously benefited from growth measures and have grown significantly in recent years."