ed Too selfish lenders

Banks should stop exploiting the financial weak

Quite a few European banks are reeling under a crisis because of their risky dealings with foreign governments and corporations. ``Not a chance here,” most Korean banks might say. They have been prospering on the safest ― and easiest ― business practice: capitalizing on the spread between lending and deposit rates provided by domestic borrowers.

The simple but lucrative financial technique will likely bring about a record net profit of 20 trillion won ($16.8 billion) for the domestic banks this year. Little wonder these large lenders, along with large exporters, are the only ones smiling amid the economic hardship gripping the nation.

A recent report by the Korea Financial Institute shows the so-called net income margin, or NIM, widened from 2.61 percent to 2.95 percent this past June. In a country laden with household debts of 1,000 trillion won, a 0.1 percent increase in this spread means an additional interest burden of 1 trillion won, that is, 34 trillion won in a combined total over the two-and-a-half year period.

Ironically, this is the result of the government’s policy to defuse the ticking time bomb of household debt. Slipping through the regulatory loopholes of only restraining the aggregate lending volume, banks raised lending rates, while freezing ― or even lowering ― deposit rates amid the influx of funds due to the insolvency of many non-banking lenders. As a preliminary step, they went as far as halting all household loans under the pretext of ``faithfully following regulatory guidelines.”

The banks’ predatory lending practices have long ceased to make news here. Some financial experts compared the banks to vendors who lend umbrellas when it is fine and withdraw them when the rain begins to fall.

Encouraging this bad behavior are the regulators themselves. Some officials ask what could they do in this country of free market principles.

It’s not certain whether they really don’t know what to do or just don’t want to do anything. First of all, the regulators should rectify the distorted interest movements by pulling down the CD rates, the basis for lending rates, which have remained high despite the fall of market rates. Second, they ought to force the banks to give part of the bank profits to clients in the form of discounted commissions, not as just a gesture but in more substantive ways. The banks for their part must tighten loan screening to provide funds to only those who really need them.

These shortsighted business practices would do little good for the banks themselves in the long run if the time bomb explodes.

President Lee Myung-bak might as well call in the heads of the four largest commercial banks, most of whom are his own appointees, and tell them to consider ways on how to ``co-prosper” with the rest of society.

Otherwise, the Korean version of “Occupy Wall Street” protesters might be gathering in front of these banks’ headquarters in the near future.