Lenders should stop fattening their pockets off interest gains
There are five major commercial banks and hospitals in Korea. The two institutions have one thing in common ― visitors must wait an hour or even two to receive services for a few minutes. At least, that was the case during the height of the pandemic.
Recently, banks returned to the old shift from 9 a.m. to 4 p.m. Consumers welcomed the extended service hours. Still, labor unions said they would sue management for violating their collective agreement.
Banks were among the few beneficiaries of the pandemic, as slump-stricken owner-operators borrowed heavily and interest rates jumped to rein in inflation. Last year, the five largest banks paid 1.38 trillion won ($1.08 billion) in bonuses, up 35.6 percent from 2021. Retirees in their 50s received up to 1 billion won in severance pay.
Little wonder Koreans call banks "God's workplaces," along with some state enterprises.
Yes, Korea is a capitalist society where excellent, innovative goods and services should be rewarded accordingly. For most Koreans, however, banking experiences have remained almost the same for decades. An average Korean adult has five or six bank accounts, including dormant ones, meaning they have at least one account with the top five lenders who provide similar services. Their wallets are also full of credit cards, as banks force them to have one in return for small services.
Banks still attract clients through acquaintances and human connections. Like decades ago, they make money primarily by maximizing the spread between deposits and loans, delaying the rise of deposit rates as much as possible and reflecting rises in lending rates immediately. Drivers have the same experiences at gas stations; they can see rises in international oil prices right away but feel little difference when prices drop.
Even when financial crises come, major banks do not worry as they are "too big to fail." During the Asian currency crisis of 1997-98, the government injected vast sums of public funds, i.e., taxpayer money, to save big lenders. As a result, it is a structure where one takes all the benefits, and everyone shares the loss. During and after the 2008 global financial crisis, numerous homeowners in the U.S. lost their properties, but large banks and bankers emerged unscathed as the U.S. government had to bail them out. In Korea, similar things occurred a decade earlier.
The time has long passed for the nation to change this unfair system.
In this regard, President Yoon Suk Yeol was right to stress the "public nature" of Korean banks on Monday. He called for curbing excessive profits of banks, considering the people's suffering under high interest rates. Yoon also rightly pointed out the problem of banks rewarding their employees with huge bonuses instead of accumulating sufficient reserves to prepare for future crises. Financial authorities are moving quickly to put the president's words into action, vowing to scrutinize the banks' interest rate policies, pay systems and governance structures.
These are necessary measures, but there are also pitfalls ― returning to the good old days of "government-dictated financing" by a small group of powerful bureaucrats called the "Mofia," a compound of the MoF (Ministry of Finance) and mafia. Already, there are some signs that this is happening.
For instance, Yim Jong-yong, former Financial Services Commission (FSC) chief and a confidant of the president, will chair the board of the Woori Financial Group, one of the big five financial holdings companies. The banking community, stressing that banks are "private" businesses, expressed concerns about top jobs being taken by people close to political power. Yoon must listen.
Reforming the outdated, easygoing banking sector, while freeing it from political power and the Mofia's influence, have long been one of the nation's most challenging tasks. Breaking the current oligopoly and exposing banks to more competition, both domestic and abroad, might be one way to get them to provide cheaper, more diverse and convenient services for consumers. Tighter supervision should also be differentiated between bureaucratic intervention and political intention.
It's depressing to think we must endure banks' tyranny until technology makes them unnecessary, as ATMs replaced human tellers.
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