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.
Is it right to compel commercial banks to share profits?
A signboard directs customers to the sections for personal and small business loans at a commercial bank in Seoul, Apri 2. Yonhap
By Yi Whan-woo
Presidential election puts lenders under growing pressure for ‘co-prosperity'
Years of pressure on commercial banks to share their profits with society is gaining ground again ahead of the June 3 snap presidential election, fueling a dispute over whether such a move is justifiable in a free market economy.
The pressure is associated with widening inequality in Korea, which the government and political circles are addressing in a bid to woo the public.
They have slammed banks for reaping massive interest incomes, in contrast to the snowballing debts that many households and businesses struggle to pay off.
Some economists believe that candidates for the snap election are likely to raise criticism against lenders, as multiple polls show that more than one third of voters nationwide remain undecided.
“The polls suggest candidates need a pledge that can captivate undecided voters, and in that sense, bank-bashing can be a tempting option,” said Shin Se-don, a professor emeritus of economics at Sookmyung Women's University.
Nevertheless, the professor asserted, “It is time to stop compelling banks to return their profits for political reasons.” He emphasized, “Such practices continued for too long, against the rules of a free market economy.”
“The banks are making profits legally, and you can’t justify bank-bashing in the name of co-prosperity,” Shin said.
Ha Joon-kyung, a Hanyang University economics professor, voiced a similar view, saying banks have been “making their own efforts to help reduce financial burdens for customers.”
The professor listed lowered deposit rates for retail customers, eased borrowing rules for small business with low credit ratings and other similar measures taken by banks as examples.
“These measure should be taken voluntarily, not in a forcible way from outside parties,” Ha said.
He pointed out that banks “appear to be intimidated whenever there are events that highlight their earnings and therefore deepen public sentiment against them.”
Such events include banks’ quarterly earnings announcements and hikes in the benchmark interest rate.
However, Yoo Ho-lim, a professor of taxation at Kangnam University, holds banks responsible for the negative public sentiment, arguing they “have not lived up to the public expectation.”
“The companies would not have been able to grow big without taxpayers’ money,” Yoo said, pointing out that major lenders survived the 1997-98 Asian financial crisis with the government’s financial support and prospered afterward.
“The banks should be grateful for where they are now, and sharing their profits during an ailing economy is possibly the least they can do,” Yoo said.
A member of People's Solidarity for Participatory Democracy civic group said on condition of anonymity that banks should “act more responsibly as their source of income comes from customers."
“But that does not seem to be the case, and in turn, this angers customers,” he said.
He referred to the case of Woori Financial Group, which was the latest financial holding company to become fully privatized, 26 years after being partially bailed out with public money.
Son Tae-seung, a former chairman of Woori Financial Group, was also involved in a financial scandal where he was charged with abusing power to let his relatives to take out loans without undergoing approprate processes.
Asked about possible measures to end disputes between consumers and banks, Shin suggested an overhaul of banking laws to collect higher corporate income taxes from lenders.
“The current criticism against lenders often tends to be emotional, and if the public continues to be dissatisfied with banks’ efforts in profit sharing, collecting more taxes is an option to settle the dispute,” he said.