Bank employees enjoy hefty bonuses

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By Lee Kyung-min

• Published Jan 24, 2021 4:16 PM KST
• Updated Jan 24, 2021 7:37 PM KST

By Lee Kyung-min

Staff at Korea's leading commercial lenders will enjoy hefty bonuses for last year due to the spike in demand for borrowing, thanks to a record-low interest rate and a combination of expansionary fiscal and monetary policies adjusted to fight the COVID-19 pandemic.

Criticism is expected to mount over “insensitive profit-sharing” since bonuses of up to 200 percent of their base wage come even though many intended beneficiaries of government emergency measures ― virus-hit small- and medium- enterprises (SMEs) ― are denied financing due to stringent lending requirements.

The access to cheap money is instead granted largely to young, salaried workers, whose creditworthiness is higher compared to small business owners.

Many 20- and 30-somethings have taken out mortgages or borrowed money to make stock investments, with the frenzy over the former driven by two dozen botched real estate policies that led to an over 80 percent spike in the median apartment price in Seoul over the past four years, according to data from the Citizens Coalition for Economic Justice (CCEJ).

Unions at Korea's top four commercial banks ― Shinhan, KB Kookmin, Woori and Hana ― reportedly agreed on a year-on-year wage increase of 1.8 percent for 2021. Their bonus will be as high as double their base wage used as a basis for calculating employee compensation, severance pay and retirement benefits. The date of payout will be set after they each finalize net income for 2020. A vice head of a regional branch, for example, is expected to receive about 14 million won ($12,600), double the 7 million won paid as base wage.

The “easy, undeserved” bonus is drawing protests from the public at large, translating into a political move to legislate a law dubbed as “profit-sharing,” mostly by lawmakers from the ruling bloc.

Rep. Hong Ihk-pyo of the ruling Democratic Party of Korea urged banks to voluntarily participate in the initiative, since they take monthly interest payments without any difficulties despite the continued struggling of borrowers.

“Banks should allow delays in monthly interest payments and wait before seizing properties, in line with similar moves whereby landlords are postponing receiving monthly rent from tenants whose businesses are suffering,” he said during an interview on a local radio program, Jan. 14.

Seoul National University economist Lee In-ho said banks that survived government restructuring in the Asia financial crisis of the late 1990s have since managed a high entry barrier in their exclusive license and regulatory businesses, a reason some of the criticism is somewhat justified.

“A few that survived the crisis have had no major difficulties, especially concerning their lending business defined by regular payment of monthly interest by borrowers, the easiest way to make money,” he said.

Lenders' elevated risk amid the pandemic was partly mitigated by the government guaranteeing about 80 percent of money lent to low-credit, low-income borrowers usually considered high-risk borrowers.

This is another major buffer against the possible domino effect of insolvencies, the most-dreaded scenario for lenders. Default risks are largely subdued following the government involvement in managing financial outlays for small business owners, the self-employed and low-income earners.

“Their profit breaking records every year is news that can frustrate many hard-working people suffering due to no fault of their own, just like banks are enjoying the profit not because they had any part in it. But asking them to share their profit is a topic for another discussion,” another industry watcher said.

Meanwhile, banks are likely to put up at least 110 billion won to fill the government target of 500 billion won to be drawn to help the financing of low-income earners. The remaining 390 billion won will be put up by the government including from lottery funds and by savings banks and mutual finance contributions.