Commercial banks burdened over Moon's savings assistance funding

A branch of KB Kookmin Bank in Seoul posts a notice about the state-backed savings product available exclusively for customers aged between 19 and 34 on Feb. 21. / Newsis

By Anna J. Park

As a state-backed savings product available exclusively for young people ended up receiving nearly 3 million customers, banks' burden related to the savings product is expected to exceed at least 1 trillion won ($815 million). It is only one of the cases in which financial firms have been made to sacrifice their financial soundness while executing government policies that go against market principles.

The state-backed savings product, dubbed “Youth Hope Savings,” was originally planned to be sold to only 380,000 applicants, with 45.6 billion won budgeted by the government. Only those aged between 19 and 34 with an annual income below 36 million won were eligible to apply for the savings product.

The product that is promoted to yield up to 10 percent went on sale on Feb. 21 for two weeks at 11 state-run and commercial banks. But it drew more than 2.9 million customers signing up for the savings account, almost eight times more than the government's planned quota of registrants.

The government soon expanded its quota from 380,000, allowing anyone who meets the requirements to open an account. The government is also considering reopening registration for the product in July and August.

While the government is celebrating the success of the special savings product, it seems now that the banks are the ones that will actually be on the hook for the exceptionally high yields of the savings accounts, beyond the government's assigned budget of 45.6 billion won.

Voices of criticism are rising within the banking industry. Market insiders say the failure of the government's demand forecasting has been completely put upon the shoulders of the banks.

“As more than 2 million people have registered for receiving information about the savings product, it was obvious that a much higher number of people would be flocking to the product than what the government had anticipated,” an insider of the banking industry said.

Regarding such criticisms, the Financial Services Commission (FSC) explained that the government closely consulted with the banks about the additional costs of selling the product.

“The Youth Hope Savings product was sold after close consultations with the banks as well as the Korea Federation of Banks. Banks showed willingness to actively participate in the program for the goals of social contribution and attracting future customers,” the FSC said earlier this week.

Gov't takes banks' sacrifice for granted

Yet, financial market insiders point out that the government has been continuing to transfer the burden to the financial firms with other financial policies during the pandemic shock.

Under the government's direction, the maturities for loan products for small business owners have been delayed multiple times. Loan repayments were delayed for the fourth time in February, despite the government's earlier goal of scrapping the delay by the end of March. Banks have been bearing a total 170 trillion won in loans and maturity delay, as of the end of last November.

The government's tightened regulation on mortgage loans is another target of complaint from the banking industry. Under the government's policy directions, banks had to scrap their preferred interest rates for loyal customers and raise additional interest rates for mortgage loan products, resulting in customers' outcry over the measures.

Although some say financial groups could bear the burden, given that they have been logging all-time high net profits in recent years, some still criticize the government's attitude that takes the banking industry's sacrifices for granted for the sake of its own policy goals.