Metrics to weigh heavily on low-income lending performance; delinquent debt sales and debt restructuring also under review; incentives including bonus points in municipal treasury selection under consideration
Financial regulators plan to release a comprehensive inclusive finance evaluation framework for banks this month, with results to be published annually. Key metrics under consideration include the cancellation of delinquent debt and lending performance for low-income borrowers through products such as the Saeheuimang Holssi loan. Regulators are also reviewing a plan to designate top-scoring banks as "excellent banks" — a working title.
According to financial industry sources Thursday, the Financial Services Commission will unveil the framework's outline at the sixth Inclusive Finance Transformation Council meeting, set for June 25. A kickoff meeting of the Inclusive Finance Strategy Task Force is also scheduled for mid-June. The regulator announced at the first council meeting in January that it would introduce a comprehensive evaluation system to promote inclusive finance across the banking sector, concluding that voluntary competition driven by awards and recognition had not been sufficient to embed inclusive finance as a core banking function.
The regulator had originally planned to assess banks across four broad categories — organizational structure and strategic direction, retail finance, small and medium-sized enterprises, and small business owners — but the SME and small business components are now expected to be scaled back as legislation on large-SME cooperation has gained momentum in recent weeks.
As a result, metrics related to retail finance are expected to carry greater weight. Regulators plan to focus on the share and supply volume of loans targeting low-credit and low-income borrowers — including Saeheuimang Holssi, policy-backed retail finance products and mid-rate loans — within total household lending.
The proportion of such products relative to total household loans and whether banks meet their targets are expected to be reflected in the detailed evaluation criteria.
Support for borrowers seeking financial recovery is also a key metric. Under the "Delinquent Debt Management Enhancement Plan" announced earlier this year, banks are set to begin disclosing delinquent debt sale volumes and debt restructuring performance from July — both of which will feed into the inclusive finance evaluation.
Whether a bank's internal governance structure adequately reflects its inclusive finance commitments will also be assessed. As part of this, the regulator is preparing to require banks to establish a chief inclusive finance officer role, and will examine whether banks have built adequate organizational infrastructure to advance inclusive finance. Employment levels for people with disabilities and other marginalized groups, as well as branch closure procedures, will also factor into the assessment.
Regulators plan to evaluate each bank's inclusive finance performance from the previous year at the start of each year and make the results public. This year's inclusive finance supply figures are expected to be included in the first round of assessments. Incentives under consideration include reductions in mandatory contributions to retail finance funds and bonus points awarded during municipal treasury bank selection. On top of that, top-ranked banks may be designated as "excellent banks" — a working title — a move that could also strengthen their brand reputation.
With President Lee Jae-myung having recently emphasized at a Cabinet meeting that "inclusive finance is an obligation of financial institutions," and the evaluation framework now taking concrete shape, competition among banks in this area is expected to intensify further.
Even before the metrics are formally released, banks have already begun canceling delinquent debt on their own initiative and developing loan products tailored to low-credit borrowers, aligning themselves with the government's direction. The industry's response has been broadly positive: while clearer evaluation criteria are expected to sharpen competition among banks, they are also seen as improving the predictability of how the system will operate.
"Once the evaluation metrics are finalized, intensified competition among banks is inevitable," an official at a commercial bank said. "But we see it positively in that clearer standards will reduce uncertainty."
hyuk@heraldcorp.com
