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.
Banking industry ponders ways to share profits with society
A row of automated teller machines in Seoul / Korea Times file photo
By Yi Whan-woo
President's remarks corner banks
By Yi Whan-woo
Commercial banks are keeping a low profile following President Yoon Suk Yeol's criticism of them for sharing last year's record earnings among themselves while borrowers struggled with repayments due to a steep rate hike.
“The banking industry as a whole is considering possible ways to capitalize on sales to directly help out the socially vulnerable, in addition to charity services as carried out through corporate social responsibility activities,” Korea Federation of Banks (KFB) Chairman Kim Kwang-soo told reporters, Wednesday.
The KFB announced on the same day that the banking industry will fund more than 10 trillion won ($77.9 billion) for the next three years to share with society, including financing those with low income or low credit ratings.
KFB is a lobby group for commercial banks nationwide. The members include the industry's four major players ― KB Kookmin, Shinhan, Hana and Woori ― whose parent groups posted a combined net interest margin ― the difference between interest paid and received ― at 39.67 trillion won in 2022. The figure was up 4.96 trillion won from a year earlier.
The four groups saw their combined net profits last year surge to an all-time high of 15.85 trillion won, surpassing the previous record of 14.54 trillion won set in 2021.
The KFB chief's comment comes as Yoon has been ratcheting up his rhetoric that commercial banks “should serve the public interest to some extent” and that they should act accordingly to return their wealth to society.
During a meeting with economy-related ministers on Wednesday, President Yoon focused on public utilities, energy, telecommunication and financial industries which are closely related to the livelihoods of the public.
“The public utility fees managed by the central government, such as road, railroad and postal fees, will be frozen in the first half of the year as much as possible,” he said.
He then pressured telecommunication and financial industries to offer more public support, pointing out that they present themselves as being for the good of the public while maintaining an oligopoly.
He said they should “voluntarily take part in sharing the pain in stabilizing people's livelihood in a time of high inflation.”
Speaking before his senior secretaries on Tuesday, Yoon also said the FSC, the country's top financial regulator, should make sure “a feast of wealth” among banks does not prompt a sense of deprivation and incongruity among the public.
Under the circumstances, a bank staffer said his company is “seriously considering what measures should be taken in tandem with the financial authorities' move to serve in the public's interest.”
“We have not received any concrete direction yet, but we're trying to figure out what we can do to be a responsible member of society,” the staffer said on condition of anonymity.
A staff member from another bank said, “We're thinking about how to faithfully meet the government's demands to serve the public interest.”
A third bank staff acknowledged the hefty profit of the commercial banks last year is mainly attributable to sharp rate hikes delivered by the Bank of Korea (BOK).
The BOK increased its policy rate by a combined 3 percentage points between August 2021 and January this year to tame inflation caused by stimulus policy in the pandemic era. The current base rate stands at a more than 10-year high of 3.5 percent.
“We've been trying to lower lending rates while raising deposit rates to help clients with easing financial distress on one hand and accumulating wealth on the other hand,” he said.
He pointed out the banking industry has been setting aside more loan loss reserves to cope with a chain of pandemic-induced economic pressures that are pushing more borrowers toward the possible risk of default.
“And we would be happy to take other measures by all means if the government finds them necessary to stabilize people's livelihoods,” he added.