The National Planning Commission, which is mapping out the Lee Jae-myung government's policies, has identified 'financial reform' as one of its four major reform tasks. The core of financial reform is to redirect funds that have been overly concentrated in real estate towards advanced strategic industries and small and medium-sized enterprises.
The commission noted that 'restraining household loans' is necessary to achieve this. It mentioned the possibility of imposing a 'penalty' on banks to increase their expense burden as they handle more household loans, such as mortgage loans. It also stated that it would introduce a 'small and medium-sized enterprise coexistence financial index' to evaluate banks' financial support efforts for small and medium-sized enterprises.
According to the National Planning Commission on the 19th, the commission distributed the 'Strategy Document for Real Growth in Korea,' which contains the vision of the Lee Jae-myung government, to attending commissioners during its first meeting since its inception on the 16th. The 104-page report includes the growth vision and strategies, as well as four major reform tasks including regulations, finance, administration, and education.
In the report, the commission emphasized the need for financial reform, stating, 'Financial resources should flow from rent-seeking into productive and inclusive institutional sectors.' Rent-seeking refers to the practice of obtaining income such as rent or interest profits without legitimate labor. This highlights the issue of money being concentrated in real estate.
To resolve this issue, the commission believes that comprehensive management of household debt is necessary. Comprehensive management essentially means restraining loan supply. The commission focused on raising the capital regulatory threshold to reduce banks' incentives for handling household loans. It mentioned the possibility of applying separate countercyclical capital buffers (SCCyB) and systemic risk buffers (sSyRB) to household and real estate loans. This means that when the real estate market overheats and funds are excessively concentrated, banks would be required to pile up additional capital to prepare for risks. The essence is to make banks feel burdened when increasing mortgage loans.
It also stated that the risk weight ratio for mortgage loans should be reviewed for an upward adjustment. Banks apply different risk weights for each loan to calculate risk-weighted assets, and as risk-weighted assets increase, the International Bank for Settlements (BIS) standard capital adequacy ratio decreases. Banks must maintain their BIS capital adequacy ratio above the regulatory authority's recommendation of 13%, and as risk-weighted assets increase, they must pile up more capital. The commission noted, 'The average risk weight for domestic banks' mortgage loans is about 15%, while Hong Kong and Sweden have a lower limit on risk weights of 25%,' adding that 'it is necessary to raise regulatory costs to reduce banks' incentives to prefer mortgage supply.'
The content of these capital regulations was also reviewed by the previous government. Since the second half of last year, when household loans surged, the financial authorities stated they would introduce high-intensity capital regulations if necessary, but have maintained a cautious stance. For banks, piling up capital is a significant burden. A bank official noted, 'If household loans are managed through penalties that require more capital to be piled up, mortgage loans will likely become more concentrated among high-credit borrowers,' and added that 'if the amount of locked capital increases, it could become difficult to expand value-up policies such as dividends.'
To strengthen the banks' financial supply functions for small and medium-sized enterprises, the commission also proposed the introduction of the 'small and medium-sized enterprise coexistence financial index.' This would encourage lending based on technology and growth potential even when collateral is insufficient, and it is expected to quantify small and medium-sized enterprise lending performance to score banks individually.