Local lenders have continued to impose higher interest rates on individual and corporate borrowers whose burdens are rising in the wake of the unprecedented global financial and economic crisis. We have to express deep regret over banks' long-held usurious practice of preying on consumers, especially low-income earners and smaller businesses.
Such an evil practice reminds us of the adage: ``Old habits die hard.'' The nation's commercial banks and other lenders have long been heavily dependent on income from interest margins for their survival. In other words, the lenders have slapped much higher lending rates on borrowers than their deposit rates.
As such, it has been quite easy for banks and other lending institutions to make money by widening the gap between lending and deposit rates in their favor, but at the sacrifice of consumers. In this situation, they have neglected credit analysis and loan risk control as long as they remain in profit by jacking up the gap or interest margins.
Most lenders had virtually turned into ``piggy banks'' for family-owned conglomerates until the Asian financial crisis hit South Korea in 1997-98. They had formed triangular corrupt ties with bureaucrats and businesspeople. In the aftermath of the crisis, banks tried to set up a better credit risk management system to improve their asset quality and financial health.
But it is really disappointing that things have not changed much. Banks and other lenders have continued to rely on the provision of credits secured by homes, apartments and other properties. They have returned to the old ways of making easy money without developing any advanced methods of credit analysis and risk management. They were criticized for having concentrated on extending more mortgages by taking advantage of a property boom and even speculation until the worldwide financial crisis broke out last September.
Local banks and other financial institutions became the recipient of more than 165 trillion won in public funds which were raised from taxpayer money following the Asian crisis. But they are again going cap in hand to the government for a 20-trillion-won bailout fund, hit by the worst crisis since the Great Depression. And they are now attempting to pocketing money from consumers by raising interest margins.
Kookim, Shinhan, Woori and other major lenders officially post their mortgage lending rates at 2.68 to 4.51 percent per year, higher than the central bank's key interest rate of 2 percent. But no one can borrow at those rates. The lenders now impose much higher rates of 4.51 to 5.43 percent. Other banks demand more than 6 percent.
What is more serious is that banks are not willing to lend to poor people or those with lower credit ratings. An increasing number of smaller businesses and the self-employed are driven into bankruptcy, as they are not able to have access to bank loans. Banks and other lenders are certainly responsible for this credit crunch. They are required to abandon their selfish practices and play a more active role in getting money to flow to those who need it at appropriate rates and at the proper time.