The financial authorities will begin relative evaluations of banks' performance in inclusive finance starting next year, with a plan to differentiate the burden of contributions to the Korea Inclusive Finance Agency based on these evaluations from 2028. High-performing banks could see their contributions reduced by up to 20%, while the lowest-performing banks may face an increase of up to 20, pending legal amendments. The challenge remains to ensure that even with improved performance, some banks may still receive lower ratings.
On October 28, the Financial Services Commission held its seventh meeting on the transition to inclusive finance, announcing the introduction of a comprehensive evaluation system for inclusive finance. The 17 domestic banks will be categorized into three groups: six large banks, eight mid-sized banks, and three internet banks, and evaluated relative to each other.
The large banks include KB, Shinhan, Woori, Hana, NH Nonghyup, and Industrial Bank of Korea, while the mid-sized banks consist of SC First Bank, iM Bank, Busan Bank, Gyeongnam Bank, Jeonbuk Bank, Gwangju Bank, Jeju Bank, and Suhyup Bank. The internet banks targeted are Kakao Bank and K Bank, along with Toss Bank.
The evaluation will allocate 70% of the weight to the supply of consumer finance and debt adjustment, with each accounting for 35%. The remaining 30% will be divided among governance, social consideration, and non-financial services, each receiving 10%. The assessment will consider not only the amount of loans supplied but also interest rates, the extent of principal and interest reductions, and the maintenance of normal repayments after debt adjustments.
Based on the evaluation results, contributions to the Korea Inclusive Finance Agency may be reduced or increased by up to 20%, and banks with high ratings could see fines for violations of the Financial Consumer Protection Act reduced by up to 10%. The first evaluation, which will assess this year's performance, will be conducted as a pilot program, with only the top-performing institutions' results made public. While incentives and penalties are planned to take effect in 2028, contribution increases will require legislative changes, meaning only reductions will be applied until then.
The fairness of the relative evaluation method is a point of contention, as all banks may improve their inclusive finance performance yet still receive lower ratings. Notably, one of the three internet banks is expected to receive the lowest grade of C. A Financial Services Commission official stated, “If there are high ratings, there will inevitably be lower ratings, which is unavoidable,” adding that they will review the evaluation process after the pilot.
Another key issue is how much the reduction in contributions will encourage banks to expand their inclusive finance efforts. The Financial Services Commission anticipates that the monetary benefits, along with the reputational effects of public evaluation results, will motivate banks. An official remarked, “Reputation is crucial for banks,” expressing confidence that merely making the evaluation results public will yield significant effects.
During the meeting, plans to address bad debts in the public sector were also discussed. As of the end of June, seven financial public institutions held and managed bad debts totaling 59.6 trillion won. Among these, 4.9 trillion won in long-term bad debts, comprising approximately 118,000 cases over 15 years old, will be addressed. Of this amount, 4.5 trillion won will be disposed of by the first quarter of next year, following asset investigations unless there are special circumstances.
For debtors lacking repayment ability, the principle will be not to extend the statute of limitations, ensuring that the statute is completed at the five-year delinquency mark. The cap on principal reduction rates for Korea Asset Management Corporation will also be raised from 60% to 80%. Additionally, efforts will be made to expand participation in the New Leap Fund for the lending sector and to implement special debt adjustments for self-employed individuals affected by COVID-19.
* This article has been translated by AI.
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