Lee Jae-myung Administration Moves to Bridge Financial Divide

The government has decided to reform the way individuals are assessed for credit and loans to reduce disparities in financial access. To this end, a 'Finance for All Promotion Group' (tentative name) will be established within this month. The government defines the current financial system as one 'where the most desperate individuals pay the most expensive rates' and is making the overhaul of credit assessment methods its core focus. It plans to expand alternative credit assessment systems that move beyond evaluations based primarily on past financial history, incorporating non-financial data such as tax payment information and records of utility and communication fee payments to assess future repayment capabilities.

Discussions within the 'Inclusive Finance Promotion Group' will level the redesign of the existing financial order, touching upon credit scoring systems, the structure of mid-interest rate loans, the role of internet-only banks, and the redefinition of functions for microfinance institutions. The expansion of mid- and low-income lending by internet-only banks and the re-establishment of roles for savings banks and mutual finance companies are also included in the discussion.

The government is not yet at the stage of mandating mid- and low-income lending targets for banks or directly pressuring them to lower interest rates. The financial sector generally appears to agree with the government's critique of the financial system's issues. Banks have stated they are already operating alternative credit scoring models that utilize information such as communication and utility fee payments. Concerns have been raised that a uniform push to expand mid- and low-income lending could lead to rising default rates and increased provisioning burdens. Some suggest that evaluating the expansion of inclusive finance based solely on short-term performance could provoke reckless competition for scale, and that risk-sharing mechanisms like expanding local credit guarantee foundations and policy guarantees are necessary in parallel.

Amidst this, the financial sector's tension has heightened following the National Tax Service's special tax audit into Hana Financial Group and Hana Bank. The audit, conducted by the NTS's Special Investigation Bureau 4, comes shortly after the government publicly criticized issues of financial sector monopoly and excessive interest income. Some within the financial industry analyze the special audit itself as symbolic, given its timing on a point when the government is strongly emphasizing financial public interest and social responsibility.

The government's 'Cruel Finance' policy is an attempt to redesign the financial system to shift away from a structure centered on high-credit individuals and increase access to institutional finance for those with mid- to low-credit scores. The balance struck between financial public interest and market principles, and between inclusivity and soundness, will be the variable determining the success of future financial reforms.