South Korea to link bank contributions to inclusive finance performance

The Financial Services Commission announced a new policy to evaluate the inclusive finance performance of 17 domestic banks to determine their mandatory contributions to the Korea Inclusive Finance Agency.

The commission will introduce a comprehensive evaluation system covering five main categories: governance, fund supply, debt adjustment, social consideration, and non-financial support. The government aims to encourage banks to internalize inclusive finance into their management structures by requiring them to appoint a Chief Inclusive Finance Officer.

The evaluation will expand from the current 17 banks, which include major commercial, regional, special, and internet banks, to secondary financial institutions starting next year. Banks that receive a "good" or "excellent" rating will see their mandatory contributions to the Korea Inclusive Finance Agency reduced by up to 20 percent. Conversely, banks with "poor" ratings face a penalty of up to 20 percent.

High-performing banks may also receive a reduction of up to 10 percent on fines for violating the Financial Consumer Protection Act. The commission plans to run a pilot program next year, and the first application of these incentives and penalties will occur based on performance results from the year after next. Additionally, the commission is changing how public financial institutions manage non-performing loans.

They will now prioritize the repayment ability of borrowers, automatically completing the statute of limitations for vulnerable groups like basic livelihood security recipients and people with disabilities after five years. For debts older than 15 years, the commission will cancel these debts unless there is a specific reason like hidden assets.

As part of this plan, public institutions will cancel 4.9 trillion won in long-term non-performing loans, with 4.5 trillion won scheduled for immediate cancellation by the first quarter of next year.