Banks brace for ‘co-prosperity’ burden under new administration

A signboard directs customers to the sections for personal and small business loans at a commercial bank in Seoul, April 2. Yonhap

Commercial banks are preparing for the challenge of allocating substantial funds to support financially unstable customers in the name of co-prosperity under the new government, industry officials said Thursday.

The lenders have been under pressure for years, both from the government and politicians, to share their profits with society.

Such pressure is linked to negative public sentiment that banks’ profits — much of which comes from interest income — are seen as easy money, in contrast to the hard-earned incomes of financially distressed households, small business owners and other groups.

A new president will begin his term immediately after the snap presidential election, Tuesday.

Whichever candidate wins the presidency, banks will need to make sustained efforts toward co-prosperity, as all major contenders have pledged to ease the burden on indebted customers.

The candidates, however, did not specify how they would fund the massive cash required to lower lending rates, offer special, low-interest loans and even write off debts, among a broader range of supportive measures.

Bank officials declined to comment concerning the impact of the pledges.

Inha University economics professor Shin Il-soon said, “Lack of details on co-prosperity pledges suggest the banks, as they did in the past, will need to come up with corresponding programs in tandem with the new government’s policy objectives.”

The professor pointed out that the banking industry has been implementing a plan to spend more than 2 trillion won ($1.44 billion) over the next three years from 2023 to promote mutual growth with society.

Shin Se-don, professor emeritus of economics at Sookmyung Women’s University, argued that it would require "additional trillions of won" to fulfill the pledges of Lee Jae-myung, the presidential frontrunner from the liberal Democratic Party of Korea (DPK), and Kim Moon-soo, his rival from the conservative People Power Party (PPP).

For small businesses and self-employed individuals, Lee has promised to help them switch to loan programs that offer lower borrowing rates and also deduct relevant banking transaction fees.

He also has promised to lower or even cancel debts for the targeted beneficiaries who took out loans under an emergency program run by the government in cooperation with private banks during the COVID-19 pandemic.

Kim has pledged a special loan program that offers lower-than-market interest rates for business owners who struggle with a drastic decline in revenue.

A special bank is also part of Kim’s financial objectives, aiming to offer affordable rates to low-income households who cannot borrow from major banks due to poor credit ratings.

For college students, Kim plans to lower the loan cap to help them prepare for entering society without financial worries during their college years.