The government and the financial authorities are pressing banks day after day to expand inclusive finance. Banks are actively responding to the government's inclusive finance policy, but if they further expand loans to mid- to low-credit borrowers with a high likelihood of arrears, the burden, including larger provision, is expected to grow.
According to the financial sector on the 11th, the government and the financial authorities have ratcheted up pressure on banks for inclusive finance this month. The push began with Presidential Chief of Staff for Policy Kim Yong-beom. Starting on the 1st, for three consecutive days, Kim posted on his social media (SNS) criticizing the structure of bank lending that revolves around high-credit borrowers. He said, "Banks are not entirely private corporations," and, "To keep household loans from being trapped only in the safe greenhouse of high-credit borrowers, the composition of lending needs to be shaken up."
Then President Lee Jae-myung said at a Cabinet meeting on the 6th, "Finance seems to be the cruelest field. How can a financial product for ordinary people with an interest rate of 15.9% be called finance for ordinary people?" In the same meeting, Lee asked Financial Services Commission (FSC) Chairman Lee Eog-weon, "Can't we evaluate how much (the banking sector) has realized inclusive finance and give rewards or disadvantages accordingly, or find a way to mandate (inclusive finance) institutionally?"
As the presidential office moved, the authorities also stepped in. Recently, the Financial Supervisory Service summoned five commercial banks and was reported to have discussed supplying about 70% of Sae-Hope Loan to the bottom 20% by credit grade. Sae-Hope Loan is extended to borrowers with annual income of 40 million won or less, or to those with annual income of 50 million won or less who are in the bottom 20% of personal credit scores. The interest rate is in the 6% range per year.
According to the Financial Supervisory Service (FSS), as of the end of last year the arrears rate of Sae-Hope Loan stood at 1.6%. However, a banking sector official said, "Customers in the bottom 20% by credit grade are already highly likely to have bank loan arrears. If 70% of Sae-Hope Loan is funneled to these customers, the arrears rate will inevitably rise sharply."
Banks are carefully watching the government and actively responding to the call for inclusive finance. The five major financial holding companies (KB, Shinhan, Hana, Woori, NH Nonghyup) provided 5.67 trillion won in inclusive finance in the first quarter of this year. That is 43% of this year's goal aggregates of 13.22 trillion won. In just three months, they effectively reached half of the annual target.
Even so, as the government and authorities continue to press for expanded inclusive finance, discontent is growing within the banking sector. A banking sector official said, "The more faithfully we carry out the government's and authorities' directives, the more the criticism of banks grows and the longer the list of demands becomes—a frustrating situation."
Another financial sector official said, "We recognize the need for inclusive finance, but if the government wants to avoid sparking controversy over state-directed finance, it needs to show it is attentive to both loan supply and banks' soundness."