[EDITORIALS]Banks for the nation

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[EDITORIALS]Banks for the nation

This year, every domestic bank is expected to record its largest-ever profits. This contrasts with the general domestic economy, which remains sluggish. There are complaints that banks are contributing little to the national economy even though their profits have improved.
Han Duck-soo, deputy prime minister and minister of finance and economy, said in a forum with the top managers of financial companies yesterday, “Financial institutions have focused on loans to large-size companies and loans backed by real estate, aggravating imbalances in the domestic economy [between large and small businesses.]” He meant that banks are preferentially loaning money to safe business, and neglecting their role of providing liquidity to those in need.
Accordingly, banks are competing to offer loans to large companies with abundant cash, while small and mid-sized companies, whose businesses are more risky but have great potential, are suffering from a lack of funds.
If a product seems a little more profitable than others, domestic banks rush to sell it. A typical example would be loans backed by real estate, which are regarded as one of the major factors behind real estate price hikes this year. As banks focused on such loans ― an area where losses are particularly unlikely ― they did not supply sufficient corporate loans. They went overboard, producing a glut of loans backed by mortgaged property. Until the financial supervisory authorities warned against this practice, the fever to issue new mortgage-backed loans continued unabated.
With such business practices, the domestic banking sector cannot guarantee its long-term development and cannot even guarantee stable operations next year. The banking industry has grown along with the overall national economy. Without steady growth of the general economy, it is difficult for the banking industry to develop in the long run. That’s why banks should fulfill their role of leading the economy with a long-term view.
But domestic banks are currently pursuing only immediate short-term profits while neglecting the development of new financial products and marketing methods and the exploration of new growth engines. Although they have expanded in size and their financial conditions have become sound since the 1997-98 financial crisis, their business practices remain underdeveloped.
Banks should recognize that unless they work to support the national economy, the economy will not support their businesses in the long term. What’s good for Korea as a whole can be good for banks too.

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