dailies-editorials (3)

(EDITORIAL from Korea JoongAng Daily on May 15)

'Inclusive finance' disclosed as risk factor in U.S. markets

Recent annual reports filed by Korea's major financial holding companies on the New York Stock Exchange (NYSE), in compliance with reporting requirements set by the U.S. Securities and Exchange Commission (SEC), offer a revealing glimpse into the realities of Korea's financial market. KB Financial Group, Shinhan Financial Group and Woori Financial Group all identified the Lee Jae Myung government's expanding push for "inclusive finance" — a policy initiative it has championed since last year — as an "investment risk factor." Risks that could not be openly acknowledged in domestic disclosures were laid bare in filings made in the United States. Industry insiders say the firms were mindful of the U.S. legal environment, where insufficient disclosure of potential risks can trigger class-action lawsuits.

These financial groups are also listed on the NYSE through American depositary receipts (ADR), and their assessments were notably specific. KB Financial Group stated that "the government has sought to improve financial accessibility for low-income individuals and financially vulnerable borrowers through inclusive finance policies," warning that such measures could heighten the risk of borrower defaults, leading to rising delinquency rates and deteriorating asset quality. Shinhan Financial Group similarly disclosed that efforts to comply with government-led inclusive finance programs could contribute to higher delinquency rates and weaker asset soundness. Woori Financial Group also warned that extending financial support to sectors that would not ordinarily qualify for assistance could result in unintended costs and losses.

The warning lights are already flashing. As of the end of the first quarter this year, delinquency rates among small- and medium-sized enterprises at Korea's five major commercial banks had sharply worsened. Even more troubling is the distorted interest-rate structure that defies market principles. Some policy-driven microloan programs are now producing "interest-rate inversions," in which low-credit borrowers receive lower rates than high-credit borrowers. Supporting financially vulnerable groups is important, but there is growing concern that such policies could undermine the most basic principle of finance: that interest rates must reflect risk.

The reality that policy pressure imposed under the banner of inclusive finance has begun to shake the very foundation of risk management — the core function of finance — and has even compelled financial institutions to classify it as an "investment risk factor" in overseas disclosures should not be taken lightly. The fact that financial holding companies chose to sound the alarm indirectly through SEC filings suggests that the burden has reached a critical threshold. No one disputes the public role of financial institutions emphasized by President Lee Jae Myung. But an excessive fixation on inclusive finance must not be allowed to distort the principles and order of the financial market itself. The government's policy focus should be on preserving the soundness of the financial system, not on populist financial measures wrapped in the language of good intentions. Inclusion cannot be sustained once the financial system itself begins to crumble.

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