Lax lenders

President Lee Myung-bak has demanded that banks make an effort to help solve the financial crunch in return for government aid.

Approving the government’s guarantee of external debts of local lenders on Tuesday, Lee said, “It is not appropriate that lenders receive government support when they are getting a high salary. Lenders are encouraged to make corresponding efforts.”

Banks have come up with urgent measures such as slashing salaries of executives and freezing wages of ordinary workers. Bank chiefs met at the headquarters of the Korea Federation of Banks to announce resolutions to help overcome the financial crisis.

Only a few days before Lee’s remarks, the government announced a package of measures to shore up confidence in Korea’s financial markets, which include a state guarantee of up to $100 billion of foreign currency loans owed by local banks and a provision of $30 billion to the swap market.

Seeing the president forcing lenders to take action themselves is not very pleasant. But the lenders’ lax management practices and moral hazard, which are mainly to blame for the current situation, definitely need looking into.

Even if the government did not impose this kind of pressure, banks should have voluntarily offered to take action.

Some lenders complain that the dollar crunch, which originated from the U.S. financial turmoil, was inevitable. But that doesn’t mean they are free of responsibility. Aside from the dollar shortage, the Korean won’s liquidity problem was caused by Korean lenders, not by external factors.

They were focusing on external growth without worrying about risk control. They seized on the opportunity presented by stellar performance and awarded their executives handsomely.

Now that the circumstances have changed abruptly, they are asking for government support - a habit that they maintained in the past. Banks don’t seem to have come to their senses even after the battering they received during the Asian currency crisis in the late 1990s.

Banks seem to think that government aid is given for them to tackle the ongoing crisis. However, they should be held liable for the monetary support, which has come from national taxes.

Lenders should earnestly reflect on their conduct and embark on a series of fundamental reforms and improve their lax management practices.