By Kang Seung-woo
The net earnings of the domestic financial industry for this year are projected to be a near record 30 trillion won.
Banks and non-life insurers aggressively raised lending rates and auto insurance premiums, while credit card issuers squeezed small retailers with hefty fees.
However, appeals to financial institutions to lower surcharges are falling on deaf ears, and they are coming under siege for what the rest of society see as pure greed.
According to FN Guide, a leading online financial information provider, 29 listed financial institutions are expected to rake in 20.7 trillion won in net profits for 2011. The 29 are comprised of nine banks and financial holding firms, nine insurers, 10 brokerages and one credit card company.
Considering the listed players’ net incomes generally account for two thirds of the total net profits of the sector, the financial industry is likely to make nearly 30 trillion won in 2011.
Last year, the Korean financial industry made 21.8 trillion won in net earnings that included 14.9 trillion won from the 29.
Should they approach the 30 trillion mark this year, the figure will be a record breaker beyond 26.3 trillion won made in 2007.
By field, banking led the pack with 16 trillion won, followed by 6.4 trillion won at insurers, 2.8 trillion won at stock traders, 1.4 trillion won at card issuers and 1.4 at asset management and micro-credit cooperatives.
Especially, banks and non-life insurers are likely to see their incomes take off.
Lenders, which posted 9.3 trillion won in 2010, made 3.2 trillion won among seven players excluding gains on the sale of shares in Hyundai Engineering and Construction (Hyundai E&C).
In addition, their growing net interest margin helped spur earnings, increasing to 2.98 percent as of the end of September this year from 2.85 percent in 2010.
Non-life insurers, which gained 2 trillion won in net profits last year, are expected to surpass 3 trillion won for the first time thanks to auto insurance premium hikes and the financial regulator’s change in auto insurance payment methods.
Despite the record profits, a closer look shows that the financial institutions’ overseas earnings are practically nothing in comparison with domestic ones, which translates to them having squeezed local customers on their way to impressive numbers.
In addition, what more made them public enemy No. 1 is their plan to pay hefty dividends, while enjoying big paychecks.
As result, the financial authorities called for the financial industry to rid itself of excessive greed and reflect upon its morality amid the "Occupy Wall Street" movement triggered by anger over the local finance industry's actions.
Under criticism for greed, banks hurriedly announced plans to cut high commission fees that have amounted to 3.7 trillion won as of the end of the third quarter.
However, they are trying to make up for the loss by raising lending rates, which is more lucrative.
According to the Bank of Korea (BOK), annual lending rates for households have been on a steady rise from 5.46 percent in July to 5.66 percent in September.
Non-life insurance firms also face pressure from the public and financial authorities to lower auto insurance premiums that they increased last year due to worsening loss ratio on auto insurance that posted an all-time yearly record of 80.3 percent, with a loss of 1 trillion won.
But the ratio has hovered around 70 percent for the eighth straight month since February.
In addition, the newly-introduced payment methods in auto insurance are spurring a sharp increase in profits. According to the new system from the Financial Services Commission (FSC), drivers may have to shell out up to 10 times more for automobile repairs after an accident.
A few large players are expected to make profits two to three times as much as last year.
However, the industry thinks it is premature to cut rates after just seeing the loss ratio stabilizing for less than a year.
“In winter, the loss ratio may rise again due to heavy snow,” said an official of the non-life industry.
“After monitoring the ratio during the winter, we will be able to open negotiations over rate cuts.”
Card companies, recently under fire for their hefty commissions, joined banks and insurers on Sunday, as they plan to gradually reduce services from their mileage system.
After facing pressure to slash fees on small retailers, card issuers lowered them from over 2 percent per transaction to 1.6 to 1.8 percent, on par with those of larger entities.
“The financial firms have advertised extensively their corporate social responsibility (CSR), but they had better do something to relieve the household burden,” said the Korea Finance Consumer Federation, a local civic group.