The Korea Chamber of Commerce and Industry (KCCI) has argued that an excessive concentration of financial sector funds in real estate is taking place, stressing the urgent need for institutional reforms to redirect capital toward corporate finance and innovative investments.
In its report titled "Economic Sector Opinions for the Promotion of Productive Finance," the KCCI stated on September 7 that financial companies need a relaxation of risk-weighted asset (RWA) regulations to facilitate a shift toward productive finance, such as participation in the National Growth Fund.
The KCCI pointed out that, currently, the average risk weight for mortgage loans with collateral is 15%, whereas it is 75% for corporate loans and as high as 400% for venture investments. This structure compels financial institutions to allocate funds mainly to safe assets. The KCCI emphasized the need to promptly introduce in Korea the exception clause for policy-purpose fund investments permitted under Basel III, the international financial soundness standard.
The report also noted that venture capital (VC) investment by general holding companies is limited to 40% for external investments and 20% for overseas investments, hampering the activation of venture investments. It called for easing these regulations through amendments to the Fair Trade Act. Other suggested institutional improvements include expanding the fintech (finance + technology) investment limits for financial holding companies, extending the period for innovative financial services (financial sandbox), legislating token securities, and defining the concept of digital assets.
Conversely, the KCCI stated that regulations that increase the burden on financial companies or infringe on management autonomy-such as raising the education tax rate or introducing a reporting and approval system for bank branch closures-should be carefully reviewed. If the amendment to the Education Tax Act is implemented, the additional tax burden on financial companies is expected to reach 1.3 trillion won per year. The KCCI also maintained that the reduction of bank branches should be an autonomous decision in response to changes in the financial environment.
As measures to vitalize the capital market, the KCCI cited lowering the top rate of dividend income tax and introducing long-term investment incentives. It noted that the current top rate of 49.5% is higher than that of major overseas countries and proposed lowering the separate taxation top rate to 25-35%. The KCCI also suggested expanding refunds for securities transaction tax, raising the non-taxable and contribution limits for Individual Savings Accounts (ISA), and increasing the income deduction rate for venture investments.
Kang Seokgu, head of the KCCI’s Research Division, stated, "As the passage of bills to boost economic vitality is delayed, funds remain in unproductive areas," adding, "Institutional support to expand corporate finance and innovative investment is urgently needed."
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