[Focus] The dilemma of inclusion and profitability…this is the financia...

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| News Watch= Reporter Park Su-Jin | KB, Shinhan, and Woori Financial Group have stirred controversy after disclosing in their recently submitted annual report (Form 20‑F) to the U.S. Securities and Exchange Commission (SEC) that the government’s “productive and inclusive finance” policy could lead to higher delinquency rates and worsening asset soundness. The three financial holding companies issued a joint statement explaining that the remarks stemmed from differences in disclosure rules and formats, but some observers argue that the finance industry’s “true feelings” about the dilemma between inclusiveness and profitability have now surfaced.

According to the financial industry on the 19th, KB Financial Group, Shinhan Financial Group, and Woori Financial Group each submitted their annual reports to the U.S. Securities and Exchange Commission (SEC) last month. The reports include each company’s business performance, board of directors, major shareholders, and key investment risk factors for the previous year.

The controversy began with the wording of these risk‑factor descriptions. The three financial groups explicitly listed the government’s productive and inclusive finance policy as one of the management risk factors.

KB Financial stated in its report, “In 2025, the Korean government began promoting an inclusive finance policy to enhance access to financial services for low‑income households and financially vulnerable groups. In responding to this policy direction, there is a risk that customer credit risk may increase, which could in turn lead to higher delinquency rates and a deterioration in asset soundness.” It further added, “It is impossible to accurately predict what new regulations might be imposed on our company or the financial industry in the future. However, such regulations could reduce our interest margins, limit our operational flexibility, intensify competition, and ultimately have a material adverse effect on our operating performance and financial condition.”

Shinhan Financial also noted that the government’s inclusive finance policy could trigger higher delinquency rates and a weakening of asset quality. It added, “We may voluntarily consider government incentives in our loan‑approval process, but loan approval decisions are ultimately made based on internal credit‑review procedures and risk‑management systems, independent of government policy. Shinhan Bank is expanding lending to small and medium‑sized enterprises and low‑income households while strengthening loan screening and post‑approval management in an effort to reduce non‑performing loans. However, it is difficult to guarantee that these measures will fully prevent bad loans.”

Woori Financial likewise pointed out that the government has been policy‑wise urging banks to increase lending to specific industries and financially vulnerable borrowers. It went on, “In the future, the Korean government may request, at the policy level, that financial institutions invest in or provide financial support to certain sectors. While some of these requests may align with our own strategy, there may also be cases—such as the government’s plan to direct up to 7 trillion won in inclusive finance investments over the next five years—where we are required to provide funding to sectors we would not have supported otherwise, potentially exposing us to unintended costs or losses.”

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In connection with this issue, criticism has emerged that these financial holding companies disclosed to overseas investors information they did not provide in their domestic public filings. Some observers have suggested that the financial groups may have chosen to reveal, abroad, comments they could not make at home due to concerns about government reactions.

As the controversy spread, the three financial groups issued a joint statement explaining that the differing disclosures were simply due to differences in rules and disclosure formats. They noted that the U.S. annual report (Form 20‑F) must be drafted in accordance with SEC disclosure requirements and the principle of investor protection, which call for the broad inclusion of “potential risk factors and uncertainties.”

They further stated, “This is not intended to provide additional information to specific investors or to discriminate against domestic investors. The difference reflects the disclosure style required under U.S. securities law—‘full disclosure’—and the need to defend against legal risks such as lawsuits. The original English text and its Korean translation are also filed with the Financial Services Commission’s electronic disclosure system, so domestic investors can access the same information.”

They added, “U.S. disclosure practices require issuers to comprehensively describe various possible scenarios in order to protect investors and manage the issuer’s legal liability. Accordingly, a wide range of potential risk factors and uncertainties—such as geopolitical risks in the Middle East, possible changes in household‑loan regulations, and the impact of artificial intelligence on the industry—are included together.”

Finally, they emphasized, “Domestic financial holding companies empathize with the government’s productive and inclusive‑finance policy and have adopted it as one of their core management directions. While voluntarily participating in the policy, we are also managing our internal risk‑assessment frameworks and systems to maintain asset soundness. We will continue to ensure appropriate disclosures in line with both domestic and overseas regulatory requirements and the principle of investor protection.”

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In practice, the three financial holding companies are expanding their productive and inclusive‑finance support and aligning themselves with these policy directions.

KB Financial has selected 45 promising startups through its “KB Starters” program and is providing them with support ranging from collaboration and investment to assistance with global expansion. KB Kookmin Bank, as part of the “KB Kookmin Happy Hope Project,” has returned to borrowers more than 5% in excess interest on individual business‑owner loans, treating it as principal repayment to reduce their loan burden. The bank also supplied 306.8 billion won in private mid‑rate loans during the first quarter.

Shinhan Financial launched its “Seongguan Team”(Batting eye Team), pledging to analyze the broader industrial ecosystem and proactively support it, thus shifting fully to a “productive finance” framework. Shinhan Bank announced it would provide 1.23 trillion won in guaranteed loans to non‑capital‑area firms under an agreement with the Credit Guarantee Fund, in order to help local industries grow.

Woori Financial, in partnership with the Credit Guarantee Fund, has launched 2.4 trillion won in financial support to ease the financing burden on small and medium‑sized enterprises and stabilize the real economy. The group has also teamed up with the Doosan Group to promote the development of the future strategic‑industry ecosystem, including energy, smart machinery, semiconductors, and advanced materials.

While voices inside and outside the financial sector emphasize the need to manage profitability and asset soundness, the banks are stressing that they are choosing to follow the policy direction rather than prioritize rapid balance‑sheet growth, and are working to maintain stable management. A financial‑industry official said, “Expansion of lending to mid‑ and low‑credit borrowers is being carried out on the basis of repayment capacity and robust risk‑management frameworks. We are stabilizing asset soundness through internal credit scoring and limit controls, and plan to continue maintaining a balanced approach between financial support and risk management going forward.”

Reporter Park Su-Jin newswatch@newswatch.kr