Thriving on Crisis

Finance Ministry Urged to Better Protect Individual Borrowers

Management gurus often say there is an opportunity in every crisis. No other industry is practicing this axiom better than the financial sector, particularly the nation's huge commercial banks.

The Board of Audit and Inspection (BAI) has recently found that banks, insurers and savings banks over-collected 15.7 billion won in overdue interest from borrowers over the past three-and-a-half years, by unfairly including two more days ― the maturity dates and repayment dates of loans ― in calculating punitive charges.

Exorbitant as it may seem, the income from this minor cheating is peanuts compared with at least 2 trillion won in additional earnings recorded by major banks from applying unjustifiably high interest rates on their mortgage lending to household borrowers, a practice the government's anti-trust agency suspects as rate fixing, which is equivalent to a price cartel in manufacturing industries.

The trustbusters should get to the bottom of the collusive rate decision, as there are few good reasons otherwise all the big commercial banks could raise the spread by at least 1 percentage point on mortgage loans, the aggregate total of which has exceeded 200 trillion won.

Worse yet, the uniform mortgage rate increase came amid the historically low benchmark interest rate as part of the government's economic stimulus to get out of the Great Recession, resulting in the widest gap between deposit and lending rates in almost a decade. In short, these banks are capitalizing on the government's low-interest policy and the rising fund demands from households amid a prolonged business slump.

To put it another way, banks have spread the U.S.-caused financial crisis to the domestic economy, especially the most vulnerable sectors of small businesses and households, and are getting out of it faster than anyone else in part aided by the government's support through public funds ― taxpayer money ― and by enriching themselves at the expense of the general public.

One might wonder what the regulators were doing. The BAI's report provides part of the answer: The Financial Supervisory Service swelled the number of their employees as well as their average wages to give them 14.2 billion won in severance payments and special bonuses other than stipulated in its original budget between 2002 and 2008. The amount is of course nothing compared with the astronomical payments the U.S. financial CEOs receive, but is hardly comforting thinking these violations have been committed by the very people who are supposed to check them. Anyway, many officials at the regulatory agency will soon move to the financial service firms they are currently supervising in a revolving-door appointment.

The banks' selfish business practices have long ceased to be news here, even forcing President Lee Myung-bak to lament the situation once, saying, ``However low the government keeps its policy rate, the atmosphere at banks' lending desks is as chilly as ever for household borrowers." The President was insinuating that without correcting the exploitation of consumers by financial firms, the government's stimulus package would get nowhere.

Financial analysts here have long called for the domestic banks to sharpen competitiveness by introducing cutting-edge financial techniques and products instead of resorting to the simple business of profiteering from gaps in lending and deposit rates.

Most consumers might not agree, however: Given the problems caused by banks using the oldest and most basic banking technique, what would have been the damage if they had been armed with U.S.-style state-of-the-art financial cheating?