Banks propose new financial entity dedicated to small business support
Then-Democratic Party of Korea (DPK) leader Lee Jae Myung, front row third from left, poses with Korea Federation of Banks (KFB) Chairman Cho Yong-byoung, front row second from left, and other bank CEOs and DPK lawmakers at KFB headquarters in Seoul, Jan. 20. Korea Times photo by Lee Han-ho
The business lobby for commercial lenders has proposed that the Lee Jae Myung administration establish a dedicated financial entity to support small businesses, financial industry officials said Monday.
It also urged the government to respect the banks' managerial autonomy, expressing concerns over "excessive" demands for contributions to society.
The Korea Federation of Banks gathered input from its members and on Thursday submitted the final report, which includes the proposals, to the presidential state affairs committee.
One industry official told The Korea Times that the banking sector conveyed its expectations and concerns ahead of the announcement of specific financial policies, hoping they would be taken into account.
In particular, the report called for the creation of a dedicated financial institution for small business owners and the self-employed to improve the efficiency and specialization of policy implementation. It would offer a full range of tailored services, including direct and indirect lending, credit guarantees and consulting.
This proposal comes against the backdrop of substantial contributions already made by the banking sector. Last year alone, banks provided approximately 2.99 trillion won ($2.1 billion) to guarantee credit institutions. Various support programs are currently in place, including interest reimbursement schemes totaling 1.5 trillion won for small business owners and the self-employed.
It is widely anticipated that the new government will step up pressure on the banking industry to boost its financial contributions.
Banks highlighted Korea’s disproportionately high share of self-employed workers compared to other major economies and proposed corresponding policy measures to address the issue.
By the end of 2023, self-employed individuals accounted for 23.2 percent of Korea’s total employment — far exceeding figures in France at 12.9 percent, Japan at 9.5 percent and the U.S. at 6.1 percent.
"Curbing new entries into oversaturated sectors, encouraging orderly business exits and offering incentives for well-prepared startups are necessary," they said.
Greater managerial autonomy across the banking industry was also requested.
While acknowledging that banks inherently bear a high level of social responsibility due to their central role in maintaining financial stability and their close ties to daily life, they cautioned against excessive demands for public interest.
"It could distort risk management and undermine competitiveness. There is a need to ensure autonomy in key management areas such as pricing (including interest rates), dividend policies and branch strategies," they said.
Additionally, the banking sector emphasized the need to ease regulations that prevent them from entering new businesses. They have long argued that such regulatory constraints create an uneven playing field, as big tech companies are free to develop services that blend financial and nonfinancial functions.
Banks specifically supported the Digital Asset Basic Act introduced by Rep. Min Byoung-dug of the Democratic Party of Korea on June 10. They added, "If approved by regulators, the legislation could legally allow banks to issue stablecoins and engage in digital asset custody services."