Big 5 financial groups rush to appoint CIFOs and restructure ahead of inclusive finance review
Boards that hold real decision-making power lack anyone with a relevant track record
US banks have appointed heads of low-income lenders as outside directors
Government weighing bonus points and other incentives for groups that name inclusive finance experts to boards
South Korea's major financial groups are overhauling their governance structures ahead of an upcoming inclusive finance review — appointing chief inclusive finance officers and standing up dedicated units — yet the boards that actually set business strategy and direction have virtually no one with a relevant background.
Experts say boards need inclusive finance specialists if the policy is to take lasting hold, and financial regulators are weighing incentive schemes to embed the agenda more deeply in bank management.
The five major financial holding companies — KB, Shinhan, Hana, Woori and NH — are preparing to launch dedicated inclusive finance units ahead of the rollout of a comprehensive inclusive finance evaluation framework, industry sources said Sunday. Hana Financial Group became the first in the sector to appoint a chief inclusive finance officer (CIFO) in August, and NH NongHyup Financial Group is also working through an organizational overhaul. KB, Shinhan and Woori Financial Group are accelerating their own efforts to stand up inclusive finance units.
In the inclusive finance evaluation framework it announced last month, the Financial Services Commission said it would assess how well banks have built the governance infrastructure needed to carry out inclusive finance strategies. With the evaluation set to expand to non-bank financial institutions next year, holding companies are moving to get ahead of the requirements.
Regulators, however, worry that the industry's efforts may amount to little more than window dressing. Simply appointing a CIFO or creating a dedicated team is unlikely to guarantee the staying power of inclusive finance policy, officials believe. "There is a real risk that an ESG executive ends up doubling as CIFO, or that a department just gets a new nameplate," one industry official said. "My understanding is that the government is looking for ways to embed the inclusive finance agenda into how banks are actually run." Kim Yong-gi, head of the Production and Inclusive Finance Research Society, said that while expertise and experience matter, "ultimately, what counts most is the will to act."
Experts argue that for inclusive finance policy to take root, specialists need to be placed on boards, which hold decision-making authority over the full range of management issues.
Yet boards at both the bank and holding-company level are almost entirely without directors who have relevant inclusive finance backgrounds. An analysis of the five major banks' semi-annual reports found that only one outside director across all five bank boards had direct experience in areas the government currently defines as inclusive finance — such as debt restructuring or lending to low-income borrowers. Among the five holding companies, not a single such director exists.
Banks do appoint financial consumer protection specialists as outside directors, but that is a distinct field from inclusive finance. Consumer protection focuses on safeguarding customers' rights against mis-selling and similar harms, whereas inclusive finance aims to eliminate gaps in financial access by expanding the supply of services to low-income borrowers and underserved communities.
Regulators are considering incentive measures to encourage sustained inclusive finance practices. One option under review would award bonus points in the governance section of the comprehensive evaluation to institutions that appoint inclusive finance experts as outside directors. Because regulators intend for evaluation results to produce meaningful differentiation, whether a bank names such a specialist to its board is expected to become a key variable in determining its overall rating.
Overseas precedents exist. US Bancorp appointed Dorothy Bridges — who had served as chief executive of City First Bank, a lender specializing in low-income communities — as an outside director in 2018, and she remains on the board today. Varo Bank, a US digital bank, brought Roy Swan onto its board in 2021; Swan had served as director of mission investments at the Ford Foundation and has deep expertise in financial inclusion and community development.
Beyond board composition, regulators plan to award differentiated scores based on the staffing levels of dedicated inclusive finance units and the scope of their decision-making authority. Banks will also be assessed on how well they follow through on the inclusive finance supply plans they set at the start of the year, and on whether they have established criteria for granting immunity from liability on non-performing loans made to underserved borrowers. Regulators are also expected to examine how banks manage borrowers who are not yet delinquent but show signs of potential vulnerability.
Meanwhile, regulators plan to launch the comprehensive inclusive finance evaluation framework in early next year. The assessment will cover governance, the supply of financial services to low-income borrowers, debt restructuring and financial education efforts. Banks that perform well can receive up to a 20 percent reduction in their required contributions to the Korea Inclusive Finance Agency.
hyuk@heraldcorp.com
