South Korea pushes banks to reform lending and serve the public
The South Korean government is pushing for major changes in how banks serve ordinary citizens. A recent policy forum, organised by the Democratic Party, brought together officials and financial experts to discuss basic financial rights. The event highlighted growing concerns over lending practices and the exclusion of low-credit borrowers from fair financial services.
The Lee Jae Myung administration has made it clear that banks should act more like public institutions, given their state-backed privileges. This shift follows decades of criticism over lending policies that favour real estate collateral over broader financial inclusion. The debate gained momentum after Kim Yong-beom, the presidential chief of staff for policy, published a social media series titled The Structure of Finance. In his posts, he argued that banks—operating under state licences and benefiting from public protections—should function as 'quasi-public institutions'. Despite tax exemptions meant to support ordinary citizens, he claimed these institutions often fail to meet their social responsibilities.
At the forum, Kim also criticised the current credit rating system for relying too heavily on past financial behaviour. This approach, he said, unfairly locks out medium- and low-credit borrowers, forcing them into high-interest loans. President Lee Jae Myung echoed these concerns, questioning why the most vulnerable people end up paying the steepest rates.
The Financial Services Commission has now announced plans to address these issues. A new Inclusive Finance Promotion Team will work to reform the credit rating system and reduce financial exclusion. However, changing long-standing practices—such as banks’ reliance on real estate collateral, often called 'pawnshop-style business'—remains difficult due to existing regulations.
The push for reform traces back to the 1997 Asian financial crisis, when banks shifted focus toward profitability. Since then, the government has rebranded 'financial institutions' as 'financial companies', reflecting a more commercial approach. Yet the administration now argues that banks must return to a model that better serves public needs, aligning with its vision of a basic society—one that guarantees essential living standards in all areas, including finance. The government’s new team will begin reviewing credit assessment methods and exploring ways to lower barriers for struggling borrowers. Banks, meanwhile, may face pressure to adjust their lending criteria and reduce reliance on property-backed loans.
If successful, these reforms could reshape how financial services operate in South Korea. The focus will remain on ensuring fairer access to credit, particularly for those currently shut out of the system.
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