Redirecting money flow: Banks shift from real estate to innovation

Financial Services Commission Vice Chairman Kwon Dae-young delivers opening remarks during a meeting to eradicate voice phishing at the Korea Financial Investment Association building in Seoul, Monday. Yonhap

Financial authorities and industry leaders vowed to shift the flow of funds away from real estate financing and channel it into more productive sectors, including high-tech industries and venture companies, officials said Monday.

They made the pledge during a meeting led by Vice Chairman Kwon Dae-young of the Financial Services Commission (FSC), the country’s top financial regulator.

The closed-door meeting brought together heads of major financial associations, such as the Korea Federation of Banks, the Korea Financial Investment Association, the Korea Life Insurance Association, the General Insurance Association of Korea and the Korea Federation of Savings Banks.

The meeting focused on regulatory improvements and industry-specific initiatives to support a transition toward productive finance and was held in response to President Lee Jae Myung’s repeated calls for financial sector reform.

Lee has criticized financial institutions for relying on “easy profits” from mortgage lending and underscored the importance of expanding investment.

“There is a need to redirect capital from nonproductive to productive sectors,” Lee said during a press conference on July 3, marking his first month in office.

He reiterated this message at a meeting with his senior secretaries last Thursday, urging financial institutions to “reduce their dependence on interest-based income and take a more active role in corporate investment.”

President Lee Jae Myung presides over a meeting of senior presidential secretaries at the presidential office in Seoul, Thursday. Joint Press Corps

At Monday’s urgent meeting, convened following Lee’s rebuke, Kwon emphasized the need to open new financial channels to direct capital into forward-looking and productive sectors, such as artificial intelligence, innovative enterprises, capital markets, regional economies and small businesses.

In response, according to the FSC, the participating heads of the financial associations expressed a strong commitment to returning to their core mission by contributing to corporate growth, industrial advancement and higher national income through more efficient capital allocation.

To bolster productive finance, the participants agreed to actively participate in the creation of a 100 trillion won ($72.5 billion) public-private fund aimed at supporting investments in high-tech, innovative companies.

In support of the real economy, they vowed to expand financing for small business owners and make full use of the dedicated credit scoring system tailored for them.

They also shared the view that the capital market should function as a core platform for productive finance, enabling companies to raise capital and the public to benefit from investment returns. They agreed on the need for the financial sector to strengthen its role in providing capital through investment.

In addition, the industry pledged to take an active role in the government’s relief program supporting long-term delinquent borrowers.

Kwon emphasized the government’s role in enabling financial institutions to actively pursue productive investments, vowing to conduct a comprehensive review of laws, regulations, accounting standards and supervisory practices.

“We will promptly improve industry-specific regulations, including risk-weighted asset requirements,” he said.

Banks, meanwhile, are intensifying efforts to increase noninterest income as part of their business model innovation, focusing on expanding trust services, forging collaborations with diverse industries and broadening their global operations.

The most notable area is the trust business, in which lenders manage clients’ assets and earn fees in exchange. This sector provides a relatively stable revenue stream, particularly in a low-interest-rate environment.

In fact, trust fees earned by the five major banks grew 6 percent year-on-year to reach 240 billion won in the first quarter of this year.

“The push to grow noninterest income is not just about entering new markets but about building a sustainable growth foundation,” an official from a major bank said.