South Korea ranked 52nd out of 55 countries on an assessment of the financial regulatory sector by the International Monetary Fund.
Financial regulatory reform has been a constantly recurring issue since the 1997 Asian financial crisis. Pundits say Korea’s regulators have been relatively negligent in protecting financial consumers’ rights.
The Park Geun-hye administration, which takes office on Monday, is considering spinning off the financial consumer protection division from the Financial Supervisory Service, in a move to elevate the division’s authority.
One possibility is that the new entity may be entitled to call for inspectors at the FSS, the nation’s financial regulator, to conduct a joint probe into financial companies engaged in irregular practices, such as pressuring customers to apply for deposit products instead issuing them loans.
The chief of the financial consumer protection center could be appointed by the FSS after the FSS chief recommends a candidate. The new agency head is expected to be equivalent to a deputy governor of the FSS.
Financial firms, however, are expressing uneasiness over the larger, independent consumer protection center.
They argue that they will have to suffer the “dual burden” of being inspected by the FSS and the consumer protection entity, separately.
Professors and economists say that one lesson from the savings bank debacle in 2011 is that the agency for protecting financial consumers should be independent.
The savings bank scandal exposed the corrupt ties between FSS officials and the owners of insolvent savings banks, who misused huge amounts of customers’ money.
In addition, the Park administration is faced with many economic challenges ahead as Korea is about to enter a low-growth period, further weighed down by rising household debt and a rapidly aging society.
Park and her economic team are setting out to improve the country’s financial soundness by first extending a support mechanism that aims to alleviate the growing debt of middle-income earners and credit delinquents.
As pledged, the new government is expected to set up a fund worth some 18 trillion won, a bad bank of sorts, to acquire overdue and bad loans owed to creditors by credit delinquents.
Such a move is aimed at easing debt obligations through low-interest repayment rates in the long-term, while upgrading their credit, as part of efforts by Park to boost the livelihoods of low and mid-income groups.
There are more than 3 million credit delinquents in the country, according to Park’s economic policy paper.
This plan also calls for rejuvenating those relying on state funds for basic living by reducing their debt by 70 percent, and 50 percent for other debtors through personal workout programs.
Rising household or personal debt has been a concerning factor for Korea’s economy, along with the low birth rate and aging population.
These negative factors, analysts warned, could cast a shadow over its long-term growth.
Korea’s household debt accounted for some 90 percent of its gross domestic product, well above the standard limit of 75 percent recommended by the World Economic Forum, according to the International Monetary Fund and Korea Investment & Securities.
Park has also pledged to intervene in the currency market aggressively in response to a weaker yen that has hurt Korean exporters.
Park told business leaders that she “is aware that a stable foreign exchange rate is a very important issue. The issue will be dealt with preemptively and effectively to prevent our businesspeople from sustaining damage.”
“Local firms’ difficulties caused by the sluggish global economy will be amplified this year by the rapid growth of companies in China and other emerging nations, and by the weak yen,” she said.
The yen began weakening toward the end of last year, and aided by the Shinzo Abe government’s monetary policies, has fallen by about 20 percent against the dollar since November.
Her remarks came as Korea is considering a tax on bond or currency transactions to curb market instability caused by inflows of hot money.
By Kim Yon-se (firstname.lastname@example.org