Reporter's notebook Economic policies should be more than quick vote grabbers

ATMs in Seoul / Yonhap

It feels good to win people over.

The feeling can be all the more addictive if it does not take too much effort.

Is this what was going through the minds of the top financial authorities over the past few months?

Probably so, as judged by a slew of pandering measures, especially with low-income earners and the self-employed — the most often cited groups of vulnerable borrowers who are almost always granted fresh packages of financial aid.

On Monday, the Financial Services Commission (FSC) said the records of delinquencies will be expunged for low-credit borrowers, if their debt of less than 20 million won ($14,880) is paid in full before May 31. Eligible will be borrowings made between September 2021 and January this year.

This means lenders including banks and higher-charging insurers, credit card firms and savings banks will no longer be able to share and use delinquent borrowers’ information as a reference for assessing creditworthiness of loan applicants.

The risk of default is subsequently heightened, a responsibility that falls exclusively on the lenders.

Monday’s last-minute measure is all too similar to how the country’s top commercial lenders were cornered to make a combined 2 trillion won contribution for a fund to aid the aforementioned groups.

The collective burden took center stage after President Yoon Suk Yeol said last October that many taxpayers have essentially become “slaves” of the oligarchy-protected banks. Many said the highly charged comments were to gain public support before the 2024 April general elections.

Cementing the characterization was the local banks' net interest income averaging 42.5 trillion won between 2018 and 2022. The figure for the first six months came to 28.5 trillion won last year, raising the 2023 figure to about 57 trillion won.

A pending bill at the National Assembly introduced thereafter seeks to source up to 40 percent of a bank’s net interest income exceeding 120 percent of the past five years’ average for a fund.

The country’s leading lenders have since outlined a variety of “mutual growth” initiatives to help vulnerable groups, mostly through adjustments to the amount of interest and the date of payment.

True, the commercial lenders have registered record-breaking profits every year.

Their heavy reliance on interest income long predates the global COVID-19 health crisis, but the past few pandemic years were practically an unprecedented boon, nonetheless.

However, does that then mean the government can take credit for strong-arming heads of financial groups and banks?

Who wouldn’t do it, if all it takes is a stern talking-to with a couple of people ready to pledge nothing short of full compliance with the top decision makers?

It may seem all well and good, as long as you are among the recipients of the government’s latest financial aid packages.

But clearly lacking in the churning of target-specific, vote-seeking measures was consideration for banks’ risk management capability, especially concerning insolvencies and defaults.

Perhaps the financial authorities and by extension the president should reflect on whether the months-long approach has been too easy and too effective.

Otherwise, the one-off electioneering efforts will end up defining the financial governing principle of the administration as irresponsible and short-sighted.  

Some follow-up measures in the months to come should help frame the pre-election developments in a perspective of financial soundness.

I doubt they will come in time.