South Korea’s major banks have announced a plan to create a $1.5 billion fund to help small businesses and self-employed people who are struggling amid the COVID-19 pandemic and rising interest rates. The fund is part of a broader initiative to share profits with society and fulfill their social responsibility.
Banks respond to president’s call for co-existence
The fund was announced on Thursday, a day after President Yoon Suk-yeol urged banks to voluntarily participate in sharing the pain of vulnerable people and contribute to the finance of co-existence. Yoon said that banks serve the public interest and should use some of their profits to benefit the people, especially the self-employed and small business owners who are suffering from the economic fallout of the pandemic and the central bank’s aggressive monetary tightening.
Banks have been enjoying record profits in recent years, thanks to the low interest rate environment and the booming stock market. According to a government statement, banks’ combined net profit reached 18.9 trillion won ($14.68 billion) in 2022, versus 16.9 trillion won in 2021. However, banks have also faced criticism for paying hefty bonuses and severance packages to their employees, while raising interest rates for borrowers and lowering them for depositors.
The president’s remarks have put pressure on banks to show more social responsibility and empathy for the public. The Financial Services Commission (FSC), the financial regulator, said it will come up with measures to ensure that people do not feel any sense of discord due to the banks’ money festival.
Fund details and objectives
The fund will be jointly established by the four leading financial groups in South Korea: Shinhan, KB, Hana, and Woori. Each group will contribute 375 billion won ($290 million) to the fund, which will be managed by the Korea Federation of Banks (KFB), the industry association. The fund will be used to provide low-interest loans, debt relief, and other support programs for small businesses and self-employed people who are facing difficulties due to the pandemic and the interest rate hikes.
The fund aims to help about 100,000 small businesses and self-employed people over the next three years, according to the KFB. The fund will also support social enterprises, start-ups, and green businesses that contribute to the social and environmental goals of the country. The fund will offer loans with an interest rate of 2 percent, which is lower than the average lending rate of 3.5 percent for small businesses. The fund will also provide grace periods and flexible repayment options for borrowers.
The KFB said that the fund is a voluntary and proactive measure by the banks to share their profits with society and fulfill their social role. The KFB added that the fund is not a one-time event, but a long-term commitment to support the sustainable growth of the economy and society.
Reactions and expectations
The fund has been welcomed by the government, the public, and the small business sector. The FSC said that the fund is a meaningful and timely gesture by the banks to help the people in need and promote the finance of co-existence. The FSC also said that it will cooperate with the banks and the KFB to ensure the smooth and effective operation of the fund.
The public also expressed positive opinions about the fund, saying that it is a good example of corporate social responsibility and a way to reduce the gap between the rich and the poor. Some people said that they hope the fund will help revive the local economy and create more jobs.
The small business sector also praised the fund, saying that it will provide much-needed relief and support for the small businesses and self-employed people who are the backbone of the economy. The Korea Federation of Micro Enterprise (KFME), the representative body of the small business sector, said that the fund will help ease the financial burden and improve the business environment for the small businesses and self-employed people. The KFME also said that it will work closely with the banks and the KFB to ensure that the fund reaches the intended beneficiaries and meets their needs.
The fund is expected to have a positive impact on the economy and society, as it will help boost the liquidity and solvency of the small businesses and self-employed people, and stimulate consumption and investment. The fund is also expected to enhance the trust and cooperation between the banks and the public, and foster a culture of co-existence and mutual benefit.
