Ahead of the June 3 presidential election, tension lingers in the banking sector. This is due to the financial pledges announced by Democratic Party of Korea's Lee Jae-myung and People Power Party's Kim Moon-soo, which include lowering the additional charge and abolishing loan fees, directly intervening in banks' "interest" business. There is also growing weight on the observation that the debt restructuring and support expansion for small business owners and self-employed individuals, emphasized by both candidates, will ultimately fall largely on the banks. Concerns are increasing that the renamed "coexistence finance" will be reproduced in the new government.
According to the National Election Commission on the 16th, Lee suggested "promoting the vitality of households and small businesses and realizing a fair economy" as one of his 10 pledges recently submitted. This includes the plan to revise the additional charge that the Democratic Party of Korea has been pushing for. The main content is to exempt the contributions from guarantee institutions and education tax reflected in the additional charge to ease the repayment burden of principal and interest on households and small businesses. Lee and the Democratic Party of Korea aim to finalize legislation as early as the second half of this year.
Candidate Kim included "a revitalizing economy for small businesses and everyday people" in his 10 pledges. The People Power Party stated that it would completely abolish various fees for small business loans, similar to household loans, in order to alleviate financial burdens. This appears to be an extension of the current government's policy to reduce loan fees. Financial authorities have lowered the prepayment penalties for housing loans and credit loans to half this year.
Complaints about price regulations on loan rates and fees are emerging, suggesting that such measures will continue regardless of who is in power. A bank official noted, "Intervention in price variables has long been criticized as anti-market populism and excessive government intervention, but this perspective seems to have faded. Given that all presidential candidates from both parties are mentioning interest rate cuts and the abolition of fees, it seems that management intervention in banks will continue in the next government."
This could have a negative impact on performance. Jeon Bae-seung, a researcher at LS SECURITIES, projected in a report published on the 13th that if contributions and deposits are excluded from the additional charge, it will act as a factor that reduces pre-tax profits by 5% to 10%.
There are also observations that the burden of resources to support small businesses will fall on banks. The Democratic Party of Korea has revealed that it is considering the establishment of a "people's finance stability fund" (tentative name) in units of trillion won to support small businesses, and it is widely expected that contributions from financial institutions, including banks, will be used to create this fund. Both Lee and Kim mentioned government financial restructuring and the use of national funds as means to finance this at the time of their pledge announcements; however, there is consensus that it will not be sufficient to secure tens of trillions of won.
Earlier, banks spent about 2 trillion won on supporting interest for small businesses at the end of 2023. Last year, they also pledged to support 25,000 small business owners with 700 billion won annually for three years, totaling 2 trillion won. While banks resonate with the growing demand for social contributions, they hope not to repeat the current government's treatment of banks as mere "superior entities." Another bank official commented, "While we recognize the necessity of social finance, I believe it is inappropriate to treat banks as if they are mere servants to be used by the government as in the current administration."