South Korea’s Financial Services Commission unveils inclusive finance assessments for 17 banks and bad debt reforms for public financial institutions

South Korea’s Financial Services Commission announced an inclusive finance assessment framework for 17 domestic banks, linking lending and debt restructuring performance to financial incentives and supervisory evaluations. Banks will be assessed within separate groups for large, smaller and internet banks. Lending and debt restructuring each carry a 35% weighting, with governance, social support and nonfinancial services accounting for 10% each. Qualitative measures include interest rates, debt reductions and sustained repayment after restructuring. Results will determine adjustments of up to 20% to contributions to the Korea Inclusive Finance Agency, while the top two grades qualify for reductions of up to 10% in penalties under the Financial Consumer Protection Act. The assessment of 2026 performance will be a pilot, with only top performers named in March 2027. Incentives and penalties will apply from the following assessment, and coverage will expand to nonbank financial institutions in 2027. Public financial institutions will also shift bad debt management toward borrowers’ repayment capacity. At the first limitation deadline, five years after delinquency, claims will generally be allowed to expire if borrowers cannot repay. Debts reaching the second limitation deadline after 15 years will normally be canceled, subject to exceptions such as concealed assets. This approach parallels October rules tying bad debt recognition for smaller personal delinquent claims to expiry of limitation periods. The public sector reforms will standardize debt management criteria and strengthen centralized management through the Korea Asset Management Corporation. Planned changes will also allow guaranteed loan borrowers to seek restructuring before guarantors repay lenders and permit principal reductions before accounting write-offs. Implementation will proceed in stages from the fourth quarter of 2026. Industrial Bank of Korea (IBK) separately outlined more than KRW 30 trillion in inclusive finance support through 2030 for small businesses, small and medium-sized enterprises and financially underserved borrowers. This includes a KRW 1 trillion lending program offering borrowers with medium or low credit standing up to KRW 20 million for 10 years at a fixed annual rate of 4.9%.