[Financial Sector Bruised by Populism] COVID-19 169 Trillion... Debt Bill 'Time Bomb'

Government and Political Circles Pressure with Emphasis on Support for Low-Income Financial Services
Worried if Demands Will Intensify Ahead of Presidential Election

[Asia Economy Reporter Kiho Sung] Last year, the amount mobilized by the five major financial holding companies in relation to COVID-19 reached 169 trillion won. This was the result of pressure from the government and political circles on financial companies, citing support for low-income financial services as the reason. While demanding financial soundness management such as refraining from dividends in preparation for a prolonged economic recession, there is criticism that the demand to give up profits earned is contradictory.

According to the financial sector on the 11th, despite the COVID-19 crisis, the five major financial holding companies?KB, Shinhan, Hana, Woori, and NH Nonghyup?recorded a net profit of 12.5502 trillion won in the first quarter of this year. Most of the financial holding companies that posted record-breaking results last year continued their performance with all-time high records this year as well. However, the mood among financial holding companies is not bright. With the upcoming by-elections this year and the presidential election next year, the government and political circles are likely to increase their demands during the full-scale election season.

In fact, as of the end of April this year, the principal deferral amount of COVID-19 loans by the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?was 86 trillion won (350,000 cases).

The five major financial holding companies announced a support plan worth about 70 trillion won for the K-New Deal Fund, which is being promoted by the government. In addition, the amendment to the Low-Income Financial Support Act, which requires financial companies to collect 100 billion won annually to support low-income financial services and is evaluated as a ‘financial sector profit-sharing system,’ was passed in March this year without significant disagreement between ruling and opposition parties.

Despite the large scale of funds raised, a considerable amount remains unused. In the case of the Bond Market Stabilization Fund, launched last year with a goal of raising 20 trillion won, the amount allocated to banks was 4.7 trillion won. The Securities Market Stabilization Fund, aimed at raising 10 trillion won, also planned for 8 trillion won to be shared by the five major financial holding companies and large securities firms outside of them. Both funds can be reactivated anytime if the bond and stock market conditions worsen. Adding up the COVID-19 financial support amount, the K-New Deal Fund, and the Bond and Securities Stabilization Funds, the total reaches a staggering 168.7 trillion won.

The financial sector agrees that financial companies should cooperate during economic difficulties but warned that excessive shifting of responsibilities that the government should bear onto financial companies could lead to insolvency. A financial company official said, “Using COVID-19 as a pretext to cover welfare resources with financial companies’ money instead of national finances does not align with market principles,” and expressed concern that “political and administrative financial pressure to win votes using financial companies’ money under the pretext of good performance will intensify.”