The financial sector is on high alert to keep tabs on where the incoming government’s “economic democratization” policies are headed.

Saenuri Party’s Park Geun-hye had laid out a much more moderate approach to economic democratization compared to her rival Moon Jae-in of the Democratic United Party, but scrutiny on the financial sector is likely to grow under her rule compared to the incumbent government.

First of all, if Park strongly pushes for various measures to resolve the household debt problem, the biggest pending issue for financial authorities, the banking sector will come under greater pressure.

The president-elect has vowed to focus on repairing the credit of defaulters and preemptively responding to non-performing loans.

She plans to do this by creating an 18-trillion-won fund to shift high-interest loans of multiple debtors to low-interest loans and to reduce the liabilities of ordinary debtors by up to 50 percent and those in the lowest-income bracket by up to 70 percent.

Even debtors who are less than a month behind on their loans will be able to join the free debt workout program, according to Park’s blueprint.

If her campaign pledges on household debt take shape, a controversy will rise over how much of the losses banks and the debtors should bear.

Park said her administration would create the 18-trillion-won fund, but financial observers believe the government would demand the banks to share some of the burden.

“With market forecasts that banks’ earnings will be nearly halved next year due to reduced loan-deposit margins among other reasons, political demand on banks to bear the losses from non-performing household loans would be just too much,” a bank official said.

Insurance companies are nervous about Park’s medical and health pledges.

Park vowed that the government will provide 100 percent financial assistance for those suffering from cancer, heart diseases, stroke and other hard-to-cure illnesses. She also promised health insurance coverage for tooth implants for senior citizens.

Currently, illnesses that are not covered by the national health insurance are covered by private medical insurances run by nonlife insurers. An expanded national health insurance means a smaller market for private medical insurances.

“Park’s pledge is moderate compared to Moon’s which promised that the government would pay for any medical expense over the 1-million-won cap per person, but Park’s will reduce insurers’ market as a result, which means we will have to find new sources of revenue,” said an official at a nonlife insurance company.

Credit card issuers are on the edge as well since Park vowed to further cut credit card commission rates for mom-and-pop stores.

The credit card commission rates charged on shops that accept the cards, which now vary according to industry types, will be based on the annual revenue of shops starting Saturday. The rates for about 2 million shops, or 98 percent of all stores that accept credit cards, will be lowered.

If the government demands further cuts, credit card firms would suffer more.

The companies plan to request the government to concentrate more on making the new commission rate system settle, rather than lowering them further.

Civic groups, however, downplayed the firms’ concerns.

“Claims that realization of Park’s pledges would downsize private medical insurance are exaggerated. Financial companies must cooperate for economic democratization as it is for shared growth,” said Cho Yeon-haeng, head of the Korea Finance Consumer Federation.

By Kim So-hyun (sophie@heraldcorp.com)