Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Banks on edge amid mounting criticism from President Yoon
President Yoon Suk Yeol speaks during an economic policy meeting with housewives, office workers, small business owners and taxi drivers at a cafe in Seoul's Mapo District, Wednesday. He spoke out against the banks for reaping "windfall profits" which comes as yet another in a string of criticisms this year. Yonhap
By Yi Whan-woo
Leading commercial banks are being further pushed into a corner due to their “windfall profits,” as President Yoon Suk Yeol is ratcheting up criticism against the lenders in an antagonistic, and even insulting manner.
The head of state has explicitly expressed opposition toward a handful of banks for reaping massive earnings that heavily rely on profit from interest.
In his criticism, the president has highlighted the stark contrast between banks and microbusinesses, many of which are self-employed, and struggle with repayments in the face of high borrowing rates.
Under the circumstances, some experts speculated, Thursday, that Yoon’s move is partly seen as a bid to make a breakthrough in tackling snowballing debts owed by households and small businesses.
“The debts have reached a level that can’t be settled unless compelling measures are taken, and it’s probably why the president is speaking against the banks in an extremely negative way,” said Jung Ho-chul of Citizens’ Coalition for Economic Justice (CCEJ), a civic activist group.
He referred to Yoon pointing the finger at banks for “living it up” in February, a month after the benchmark interest rate hike reached a 14 year-high of 3.5 percent in the Bank of Korea’s (BOK) fight against inflation.
Banks have fanned public anger by paying their workers huge bonuses and handing out large compensation packages for voluntary retirement.
Yoon then slammed the lender again this week, when he said, Monday, that small business owners are “giving their hard-earned money to make repayments as if they were slaves of the banks.”
On Wednesday, he used the term "gapjil," a Korean word for those in power who abuse their power and lord over their subordinates, as he called lenders “a cartel of vested interest, which through an oligopolistic system is engaged in 'gapjil' against customers.”
“All these choices of words by Yoon, although they sound rough and coarse, are believed to reflect the government’s extremely challenging task of dealing with the serious nature of debt in society,” Jung said.
The 3.5 percent base rate remains unchanged since January, while household debts are creeping higher toward 1,900 trillion won ($1.4 trillion).
Of the OECD member states, Korea was disgraced with the steepest growth in household debt-to-GDP ratio in the 2017-22 period, during which the ratio went up from 92 percent to 108.1 percent.
The current state of household debt is thus considered a ticking time bomb set to deal a blow to the Korean economy “several dozen times more than it did during the 1997-98 Asian Financial crisis,” according to Kim Dae-ki, the presidential chief of staff.
Concerning loans taken out by small business owners, the financial regulator has been postponing payments of principal and interest repeatedly since the pandemic.
The measure is to reduce their financial burden as many of their businesses still have not recovered from the pandemic.
The measure still is accompanied by the risk of default, as more than 350,000 borrowers are responsible for repayment of 76.2 trillion won as of the first half of 2023.
The lenders on the other hand saw an increase in their profits. Of the country’s five biggest banks, KB Kookmin reported an interest income of 7.33 trillion won for the first three quarters this year, up 7.1 percent from a year earlier.
Over the same time period, Shinhan logged a 3.8 percent gain to reap 6.25 trillion won while Hana posted an 8.4 percent increase to 5.96 trillion won.
NH NongHyup reported a 14.7 percent gain to 5.76 trillion won. The smallest of the five, Woori had a 4 percent increase reaping 5.61 trillion won.
Asked about their view of the president’s remarks, the banks responded negatively.
“This insult is what we get after faithfully following what the government has been telling us to do,” a bank official said.
Speaking on condition of anonymity, the official argued the financial authorities connotatively cited a need to hike the rates for housing loans as the housing bubble eased and would-be home buyers took out loans even in the face of a high key interest rate.
Also asking not to be named, a staff member from another bank said the lenders have been increasing their bad debt allowance, an estimate of customer balances a company is unable to collect, in a possible countermeasure against clients who default on loans.
“We could use the money for ourselves, which we did not do, but instead used to reduce household debt-related risks,” he said.