Geopolitical risk emanating from the Middle East is simultaneously shaking monetary and financial policy overall. The Bank of Korea kept its policy rate unchanged at 2.50 percent for a seventh straight time, maintaining a “wait-and-see stance”. It cited a compound shock, with inflationary pressure and a growth slowdown both increasing, as key background.

Governor Rhee Chang-yong (이창용) said the possibility of stagflation, in which the economy and prices both worsen, cannot be ruled out depending on how the Middle East situation unfolds. He indicated that policy decisions are effectively being driven by external variables.

Financial authorities have also moved to respond. The Financial Services Commission is rolling out measures to expand financial support totaling 26.8 trillion won to address Middle East risk, focusing on easing shocks to the real economy.

Support for vulnerable groups is also being strengthened. Annual contributions by the financial sector to the Korea Inclusive Finance Agency will be expanded to 197.3 billion won, and the supply of small loans will rise to about 420.0 billion won, increasing the safety-net role of policy finance.

As the central bank puts off rate adjustments and focuses on cushioning external uncertainty, policy finance led by the FSC appears to be raising the intensity of its response by expanding liquidity supply and support for vulnerable groups.

• Rhee Chang-yong: Middle East variables shake prices and growth, stagflation also possible • Bank of Korea holds policy rate at 2.50 percent for seventh straight time, in “cautious mode” amid Middle East risk • FSC expands support by 26.8 trillion won in response to Middle East risk • Financial sector contributions to Korea Inclusive Finance Agency rise to 197.3 billion won a year; small loans also increase to 420.0 billion won

Financial authorities are also speeding up structural reforms to improve financial access for small business owners.

Starting in August, banks will run a pilot of a “small merchant specialised credit-scoring model” that reflects non-financial data such as sales, industry and local trade areas, moving beyond evaluations centred on existing financial histories to build a more multidimensional credit assessment system. It reflects operators’ actual business conditions and growth potential, beyond the previous approach that relied on collateral and past borrowing. With risk management burdens increasing, the model’s sophistication and data reliability are cited as key variables.

Discussions on resuming efforts to launch a fourth internet-only bank have also reignited, bringing competition for financial innovation back into focus. The need for innovation through new entrants is pitted against concerns over soundness.

• Banks to pilot “small merchant specialised credit-scoring model” starting in August • Will the barrier to small merchant loans fall, as growth potential is weighed instead of financial history • Will the fourth internet-only bank be pushed again, with innovation versus soundness in “collision”

As expectations for easing Middle East variables and external uncertainty intersect, the domestic stock market has entered a phase of searching for direction. While expectations of a weaker dollar are working favourably for some sectors, Samsung Electronics’ “earnings surprise” has supported investor sentiment and provided upward momentum for the KOSPI.

On the corporate side, trends to expand shareholder returns are continuing, with value-up related indexes outperforming the broader market, pointing to signs of structural change. This is interpreted as reflecting expectations of improvements to capital market fundamentals, beyond a simple short-term rebound.

Still, financial authorities are raising the intensity of management over market overheating and risk factors. Triggered by the Samchundang Pharm case, they have moved to refine disclosure rules, and are also strengthening internal controls and preventive supervision to prevent repeated IT incidents.

• [Stock outlook] Expectations of an end to war and uncertainty intersect; attention on beneficiaries of a weaker dollar • Samsung Electronics’ first-quarter “super surprise”; KOSPI breaks above 5,580 • Value-up index outpaces KOSPI returns by 31.8 percent; shareholder returns also “active” • Financial regulator draws the sword over “Samchundang Pharm controversy”, speeds up disclosure improvements • Lee Chan-jin: “Zero tolerance” for repeated IT incidents; internal controls strengthened and preventive supervision expanded

Other major moves in the finance and fintech industry were also reviewed.

In the banking sector, multi-layered strategies spanning policy finance, retail products and social contribution are being reinforced at the same time. KB Financial Group is expanding its presence in policy and corporate finance, alongside spreading its content-based brand, including 6.0 trillion won in financial support for companies affected by the Middle East and expanded public foreign-exchange services. Shinhan Bank is also pursuing a combined strategy linking retail, wealth management and inclusive finance, including launching a high-interest parking account, a trust campaign and expanding branches for foreign customers.

• KB Financial Group’s “Daesi Sseuneun Daehani Saratda” surpasses 10 million views • KB Kookmin Bank and Korea SMEs and Startups Agency provide 6 trillion won in “productive finance support” to companies affected by the Middle East • KB Kookmin Bank to conduct overseas remittances for the Police Mutual Aid Fund, expanding public foreign-exchange services • Shinhan Bank runs a management-participation campaign for “SOL Mate Trust” • Shinhan Bank launches high-interest parking account “Olive Young SOL Account” • Shinhan Bank expands Sunday branches in Daegu and Busan, strengthening financial access for foreigners

Banks are also diversifying business areas with platform expansion and ESG strategy as pillars. Hana Bank is strengthening daily life-oriented services and non-financial linkages through financial support for taxi operators and collaboration with content companies. Woori Bank is specifying a sustainable management system through its “Next ESG” strategy and is also moving to reinforce brand heritage by designating “100-year branches”.

• Hana Bank provides business operation financial support for taxi operators with Tmoney Mobility • Hana Bank to introduce a “finance and content convergence” service with RIDI • Woori Bank launches “Next ESG” strategy, confirms 50 key tasks • Woori Bank designates “100-year branches”, revisiting its 127-year history

Fintech and internet-only banks are broadening the competitive axis around AI and platform expansion. KakaoBank is expanding its business areas to payments, investment and stablecoins, stepping up its “AI-based comprehensive financial platform” strategy.

Toss Bank and Naver Pay are quickly expanding customer touchpoints through retail products such as check cards and high-interest accounts, while Kakao Pay is strengthening personalised recommendation functions based on AI spending analysis.

“Hyper-personalised services” based on data and AI, and expansion of daily life-oriented finance, are becoming core competitive strengths.

• KakaoBank steps up AI and global expansion, from payments and investment to stablecoins • Toss Bank issues 130,000 K-Pass check cards in a month after launch • Kakao Pay introduces AI “spending report”, upgrading benefit recommendations • Naver Pay expands “Npay Money Woori Account” to 750,000 accounts at 4 percent annual interest