President Lee Jae-myung described the achievements of the Financial Services Commission in inclusive finance as "remarkable" during a Cabinet meeting, highlighting a significant shift in approach. Banks are reducing the external sale of delinquent debts, a long-standing practice, and are expanding internal debt restructuring and collection efforts. This change marks a transition from a focus on debt recovery to supporting economic recovery, reflecting a broader change in the perception of finance's role.
Supporting data backs this shift. The number of self-managed debt restructuring cases among the five major banks rose dramatically from 989 in the first quarter of 2025 to 3,456 in the fourth quarter of the same year. In contrast, external sales of delinquent debts plummeted from approximately 35,000 cases in 2025 to just 11 in the first quarter of 2026. The completion and disposal of long-term delinquent debts have also seen significant increases in both number and amount. The trend indicates a clear movement within the financial sector to manage bad debts internally rather than outsourcing to external collection agencies.
President Lee's perspective is clear. His statement that "squeezing every last penny is not desirable" signifies a commitment to viewing finance not merely as a debt collection system but as a pathway for economic rehabilitation. This reflects a determination to reintegrate those excluded from the financial system due to long-term delinquency.
Some policy effects are already evident. A total of 2.928 million people have received credit forgiveness, with 154,000 of them resuming normal financial transactions such as new loans or credit card issuance. This indicates a meaningful change as some previously marginalized groups are returning to economic activity.
However, it is essential to approach this trend with caution rather than viewing it as a mere success. Finance is fundamentally an industry that manages risk. Changes in the management of delinquent debts will inevitably lead to shifts in risk management structures. This is where the role of financial leadership becomes crucial.
For financial leaders such as Jin Ok-dong of Shinhan Financial, Yang Jong-hee of KB Financial, Ham Young-joo of Hana Financial, Im Jong-ryong of Woori Financial, and Lee Chan-woo of NH Nonghyup Financial, this change is not just a policy response. It presents a managerial challenge of balancing public interest, profitability, inclusivity, and soundness, which are often in tension with one another.
Historically, the external sale of delinquent debts was the fastest and most certain means of risk elimination for financial institutions. In contrast, internal debt restructuring and collection come with the potential for lower recovery rates and increased costs, which can negatively impact short-term performance. This creates a structure where financial institutions bear the burden internally.
Nonetheless, the shift in the financial sector can be viewed as a result of the government's inclusive finance policy aligning with structural necessities. Neglecting long-term delinquents could expand the financially vulnerable population, ultimately returning the burden to the entire financial system. Inclusive finance is not merely a welfare measure; it can serve as a pillar for maintaining financial stability.
The challenge lies in achieving balance. If inclusive finance devolves into indiscriminate debt relief or superficial performance competition, it could lead to moral hazard. Issues of fairness may arise for borrowers who have diligently repaid their debts. It is crucial to remember that trust in finance is rooted in fairness.
President Lee's remarks on the evaluation and incentive systems for financial institutions are also significant in this context. The goal should not be merely to expand the quantitative metrics of inclusive finance but to ensure that it operates effectively for borrowers with genuine potential for recovery. Mechanisms are needed to prevent financial institutions from pursuing excessive adjustments for short-term results.
The Financial Services Commission's institutionalization plans must be approached with caution. While public disclosure of delinquent debt management performance and incentive systems can be positive measures, excessive intervention could undermine the autonomous risk assessment capabilities of financial institutions. Striking a balance between policy and market dynamics is essential.
Ultimately, the essence of this change lies in redefining the role of finance. It tests whether finance can transcend its traditional role as a mere intermediary of funds to become a foundation for economic recovery and rehabilitation. At the same time, it will also be evaluated whether the fundamental principles of soundness and responsibility in finance can be maintained throughout this process.
If President Lee has set the direction, financial leaders like Jin Ok-dong, Yang Jong-hee, Ham Young-joo, Im Jong-ryong, and Lee Chan-woo must implement that direction in practice. Balancing inclusivity and soundness, support and accountability, is the core challenge.
Inclusive finance is necessary. However, to be sustainable, it must operate within the bounds that do not undermine the fundamental order of finance. A structure that aids recovery without compromising accountability and a system that supports while maintaining trust are essential. The success of this transition ultimately hinges on achieving that balance.
* This article has been translated by AI.
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