Four banking groups hit for usurious practice
The country's four financial holding firms reaped a record combined net profit of 13.85 trillion won ($9.77 billion) in the first nine months of this year. The sum is expected to rise further to a stunning 19 trillion won for the whole year.
Their net income is certainly an earnings surprise. Yet few welcome their outstanding performance. The reason is because their banking affiliates posted record-high interest income by simply taking advantage of higher interest rates without making any efforts to adopt advanced banking knowhow.
In a nutshell, the four financial groups ― KB, Shinhan, Hana and Woori ― have fattened their own pockets by engaging in a usurious practice. Shinhan was at the top with a net profit of 4.31 trillion won, followed by KB (4.03 trillion won), Hana (2.85 trillion won) and Woori (2.66 trillion won).
In fact, their net interest margin (NIM), or the difference between interest paid for deposits and interest received for loans, has continued to widen in line with the central bank's interest rate hikes. The Bank of Korea (BOK) has raised its key rate by a combined 2.5 percentage points since August 2021 to tame inflation.
The groups' banking affiliates cannot avoid criticism for making easy money. They have imposed lending rates on borrowers which are increasingly far higher than deposit rates. Simply put, they have enriched themselves at the sacrifice of corporate and household borrowers whose interest payments have kept soaring.
A growing number of businesses, even blue-chip companies affiliated with the country's major conglomerates, are suffering from a credit crunch amid higher interest rates and the rapid depreciation of the Korean won against the U.S. dollar. A recent default on provincial government-guaranteed debt raised for the construction of a Legoland theme park has added fuel to the fire, causing an acute shortage of liquidity in the debt market.
Individual borrowers are also hit by the surging debt service burden as mortgage rates have now shot up to as high as 7 percent, compared to around 3 percent a year ago. Household debt has already hit a record high of 1,860 trillion won, becoming a financial time bomb.
In this situation, domestic banks and their financial holding firms can ill afford to celebrate their exceptional profits. They need to pay more attention to their social responsibility and share the pains of borrowers. First of all, they should refrain from raising lending rates excessively. Then they must offer debt relief programs to vulnerable borrowers who are teetering on the brink of bankruptcy.
It is also important for banks to prepare for a possible burst of bubbles formed in the property market, which could pose a grave threat to the financial system. Banks should not forget that they owe much to taxpayers whose money was injected into the banking system as rescue funds during the 1997-98 Asian financial crisis.
The country's four financial holding firms reaped a record combined net profit of 13.85 trillion won ($9.77 billion) in the first nine months of this year. The sum is expected to rise further to a stunning 19 trillion won for the whole year.
Their net income is certainly an earnings surprise. Yet few welcome their outstanding performance. The reason is because their banking affiliates posted record-high interest income by simply taking advantage of higher interest rates without making any efforts to adopt advanced banking knowhow.
In a nutshell, the four financial groups ― KB, Shinhan, Hana and Woori ― have fattened their own pockets by engaging in a usurious practice. Shinhan was at the top with a net profit of 4.31 trillion won, followed by KB (4.03 trillion won), Hana (2.85 trillion won) and Woori (2.66 trillion won).
In fact, their net interest margin (NIM), or the difference between interest paid for deposits and interest received for loans, has continued to widen in line with the central bank's interest rate hikes. The Bank of Korea (BOK) has raised its key rate by a combined 2.5 percentage points since August 2021 to tame inflation.
The groups' banking affiliates cannot avoid criticism for making easy money. They have imposed lending rates on borrowers which are increasingly far higher than deposit rates. Simply put, they have enriched themselves at the sacrifice of corporate and household borrowers whose interest payments have kept soaring.
A growing number of businesses, even blue-chip companies affiliated with the country's major conglomerates, are suffering from a credit crunch amid higher interest rates and the rapid depreciation of the Korean won against the U.S. dollar. A recent default on provincial government-guaranteed debt raised for the construction of a Legoland theme park has added fuel to the fire, causing an acute shortage of liquidity in the debt market.
Individual borrowers are also hit by the surging debt service burden as mortgage rates have now shot up to as high as 7 percent, compared to around 3 percent a year ago. Household debt has already hit a record high of 1,860 trillion won, becoming a financial time bomb.
In this situation, domestic banks and their financial holding firms can ill afford to celebrate their exceptional profits. They need to pay more attention to their social responsibility and share the pains of borrowers. First of all, they should refrain from raising lending rates excessively. Then they must offer debt relief programs to vulnerable borrowers who are teetering on the brink of bankruptcy.
It is also important for banks to prepare for a possible burst of bubbles formed in the property market, which could pose a grave threat to the financial system. Banks should not forget that they owe much to taxpayers whose money was injected into the banking system as rescue funds during the 1997-98 Asian financial crisis.
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