The obligation for financial companies to contribute to low-income finance has been extended for another 10 years, leading to a prolonged cost burden for the banking sector. Concerns are growing that the increasing demand for debt adjustment among vulnerable borrowers utilizing policy low-income finance may further strain financial institutions.
According to financial authorities and the National Assembly, a bill extending the obligation for financial companies to contribute to the Korea Financial Services Agency was passed during a full meeting of the National Assembly's Political Affairs Committee on September 3. If the bill passes the National Assembly's plenary session, the contribution obligation will be extended until October 8, 2036.
As a result, the financial sector's contribution burden will continue for the foreseeable future. Financial institutions are already shouldering a significant amount of contributions to secure resources for policy low-income finance. According to data submitted by the Korea Financial Services Agency to Park Seong-hoon, a member of the National Assembly from the People Power Party, financial companies contributed a total of 1.4797 trillion won to the agency from 2022 to June of this year.
Breaking it down by year, contributions were 229.6 billion won in 2022, 274.1 billion won in 2023, and 302.8 billion won in 2024, showing a steady increase. Last year, contributions reached a record high of 439.6 billion won, and in the first half of this year, they exceeded half of last year's total, amounting to 239.3 billion won.
This year, the contribution rate for financial institutions has also increased, adding to their burden. Following a revision of the enforcement decree in April, the common contribution rate applied to household loan balances was raised from 0.06% to 0.1% for banks and from 0.03% to 0.045% for non-bank institutions. Since the contributions are calculated based on a percentage of household loan balances, financial institutions will have to pay more even if the loan amounts remain the same. With the extension of the contribution obligation and the increase in rates, the financial sector's cost burden has grown significantly.
The household loan balances, which form the basis for calculating contributions, are also on the rise. As of the end of August, the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) reported household loan balances of 782.1192 trillion won, an increase of 3.1401 trillion won from the previous month.
However, there are growing concerns about the financial instability of vulnerable borrowers utilizing policy low-income finance. As of June, the subrogation rates were 29.0% for the Sunshine Loan 15, 33.7% for the Special Guarantee for Low-Credit Borrowers, 18.7% for the Sunshine Loan Bank, and 22.9% for the Sunshine Loan Card. This indicates a cycle where guarantee institutions pay on behalf of borrowers who cannot repay their loans, leading financial institutions to seek additional funds to cover these losses.
The overall demand for debt adjustment among vulnerable borrowers is also increasing. The number of individuals confirmed for rapid debt adjustment, pre-debt adjustment, and personal workouts by the Credit Recovery Commission rose from 121,095 in 2022 to 189,062 last year, marking a 56.1% increase over three years. In the first half of this year, 97,199 individuals also confirmed debt adjustments. As the repayment burden on vulnerable borrowers grows, the demand for policy low-income finance and the need for stable resource acquisition are also increasing.
A financial sector official stated, "Financial companies essentially view the contributions to low-income finance as a long-term fixed cost. While there is agreement on the necessity of supporting low-income finance, the ongoing financial burden is significant for these institutions."
* This article has been translated by AI.
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