In our society, finance plays a role akin to blood in the human body. Just as a lack of proper blood circulation can lead to health issues, inadequate financial supply to necessary sectors can hinder the creation of a healthy society.
Recently, there has been controversy surrounding the harshness of the financial system. The criticism of the current system likely stems from its practice of imposing high interest rates on low-credit vulnerable groups while offering lower rates to wealthier individuals with high credit scores.
Some have argued that the credit rating system acts as an invisible class structure designed by finance, suggesting that we should broaden the outdated credit evaluation framework. This aims to alleviate the rigidity in financial provision based on credit ratings.
Following this debate, the JoongAng Ilbo reported on May 14 that major banks offer a negative balance interest rate of 4.9% for high-credit customers and 3.7% for low-credit customers. This situation is difficult to comprehend from a financial perspective. Simply put, banks face a higher risk of default when lending to low-credit individuals, yet they charge them lower interest rates. This creates a perplexing scenario where borrowers who are less likely to repay their loans receive more favorable terms.
Modern finance theory is primarily based on two concepts: portfolio theory and the Capital Asset Pricing Model (CAPM). Portfolio theory posits that diversifying investments across various assets can reduce investment risk, while CAPM suggests that seeking higher returns also increases risk.
Finance theory highlights that risk is a factor in pricing. From the perspective of commercial banks seeking profit, it is theoretically sound to charge higher costs (interest rates) to customers deemed high-risk.
The key issue is whether excessively high interest rates are imposed relative to the risk. If banks collude to set high rates, government agencies such as the Fair Trade Commission or the Financial Services Commission should intervene to assess their appropriateness. If individual banks determine interest rates based on management decisions, consumers will seek out cheaper options, leading to competition among banks that can establish fair rates.
Banks typically charge high interest rates to high-risk customers, who are more likely to default on loans. Conversely, low-risk customers benefit from lower rates.
Currently, existing financial theories worldwide do not incorporate the social value of supporting vulnerable groups.
How can we provide financial support to low-credit individuals who struggle to access financial services? While there is a recognized need for financial assistance due to social value, how can we support sectors that are difficult to fund through the existing commercial financial system?
Financial systems can be broadly categorized into bank-centric systems, where funds are supplied primarily through banks, and market-centric systems, where capital markets play a dominant role.
In South Korea, the government initially enforced savings due to a lack of domestic resources during the early stages of economic development, strategically allocating those funds to necessary industries through banks, thus establishing a government-led banking system.
As the economy grew and the need for smooth capital flow to businesses increased, the capital market expanded, leading to the emergence of securities firms that rival banks. The financial system is now transitioning from a bank-centric to a market-centric model.
Banks fundamentally offer products that guarantee principal and primarily operate by pooling deposits for lending, making it challenging to reflect individual depositors' opinions. Additionally, to ensure the safety of depositors' principal, banks must rigorously manage risk based on credit ratings when lending.
The capital market operates differently. Investors can make decisions under their own responsibility, allowing for investments that reflect their preferences and opinions. Financial products such as Social Responsibility Investment (SRI) funds and Social Impact Bonds are being developed for investors interested in socially responsible investments. Moreover, some countries have established social exchanges for trading companies that generate social value. Social investment funds act as institutional investors that finance projects producing social value.
It is preferable to facilitate funding in areas that have historically struggled to access finance through capital markets rather than banks. Financial institutions pursue commercial interests but also have a dual role in serving the public good. It is essential to gather wisdom to find a balance in this duality.
* This article has been translated by AI.
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