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| A signboard directs customers to the personal loan service section at a commercial bank in Seoul, June 22. Yonhap |
By Yi Whan-woo
The recent calls from President Yoon Suk-yeol and Financial Supervisory Service (FSS) Governor Lee Bok-hyun for commercial banks to ease the burden on borrowers over fast-growing interest rates is raising questions over whether the Yoon administration is contradicting one of its objectives of facilitating a market-driven economy.
The calls are being perceived by lenders as pressure to lower their lending rates to protect financial customers who are struggling with repayments amid soaring inflation, contrary to one of Yoon's goals, which has been to minimize government intervention on the path to economic recovery.
This move of the Yoon administration comes in response to public sentiment critical of banks for reaping huge profits over the widening gap between the interest rates for loans and deposits.
"We fully respect the president and the FSS governor in their intention to protect the vulnerable, but still, we can't put aside concerns that their demands may result in market distortion and weaken banks' capability in times of economic crisis," a bank press representative said on condition of anonymity, Monday.
The representative was referring to Yoon's comment during a Cabinet meeting, June 20, that "financial authorities and financial organizations must work together to ensure the interest rate burden on financial consumers does not increase sharply," with the Bank of Korea (BOK) moving faster on its policy rate to tame inflation.
In a separate meeting with bank CEOs the same day, Lee asked them to come up with measures to "ease the pace and size" of the interest rates on loans while underscoring that criticism is growing over the lenders' "excessive interest income."
A source familiar with the matter said the banking industry in general is critical of the Yoon government, adding, "It is defying its idea of private sector-led growth."
The source also said the unwanted adjustment of lending rates may eventually increase risks for management if the benchmark interest rate continues to rise and they are asked to take on related losses.
The same source added that the government's intervention in banks' interest rates is worrisome, because such practices were avoided even during the dictatorial rule of Chun Doo-hwan in the 1980s.
The Citizens' Coalition for Economic Justice, a civic group committed to fighting against unfair business practices, assessed that the Yoon government is "walking a thin line" between protection of the inflation-hit people and limiting market intervention.
While the group has been against the Yoon government's pro-business stance, it gave credit to the president and the FSS concerning their statements on banks' interest rates, saying, "The government should prioritize supporting the people's livelihoods."
Against this backdrop, the financial watchdog has ruled out concerns over Korea returning to state invention of interest rates as witnessed in the 1960s and 1970s.
"We want to make sure that the government is underscoring banks' role in social responsibility, nothing more or less," an FSS official told local media.
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