[Viewpoint] Our banks don’t do us proudThere is no knowing when financial authorities should end their current loose policy, and there may be another dip lurking down the road. But the global economy seems to have passed its worst. Now I can finally vent my annoyance with domestic banks during the crisis.
Banks are the center of the financial industry. Equities and other markets play a greater role than ever before, but banks are in charge of maintaining the basic financial system: deposits and loans. Despite the significance of their place in the economy, local banks hardly live up their role.
The primary role of banks is to manage individual assets well. They failed in this basic function. They generously lent to ill-managed large companies and, when those loans collapsed, they fell with them. When the banks became insolvent, the government rescued them with taxpayer money. Those subsidies of trillions of won remain as government debt. When the currency crisis roiled Asian markets, Korean banks were dogged by international lenders to pay off their debt. The government again had to step in, offering guarantees on their foreign borrowings.
More than a decade has passed since the Asian financial crisis of the 1990s. And yet the government still has to pile up debt to salvage the banks and will have to do so for decades. Banks owe their very lives to the public.
Many companies weathered the harsh restructuring of the late 1990s and transformed themselves into strongly competitive players in the global market. But since 1997, nothing has changed with banks. When the liquidity crunch hit two years ago, none of the local banks were able to borrow from abroad on their own. Ten years ago - and now - they are just as dependent on the foreign-exchange coffers of the Bank of Korea.
Banks were pushed to the window ledge after their reckless loans to large companies soured in the late 1990s. Afterwards, they shunned corporate borrowers and discovered safe and easy investments in real estate. Instead of cultivating new financial tools and strategies to hone competitiveness, banks starting pushing mortgages to capitalize on rampant housing speculation. Korean housing prices have long been overestimated and a bust of the bubble will take a toll on banks. And mark my words, banks will again have to beg for handouts from the government.
Non-operational revenues contribute more to banks’ profits than their ordinary banking operations. They rake in commissions by selling funds managed by other financial institutions. Credit cards are their cash cow. Most profit comes from predatory lending via credit cards rather than ordinary credit card service fees.
Banks fattened themselves over the last 10 years by idly waiting for consumers to fall into their trap. Banks that grew bigger after several mergers capitalized on their stature to force high commissions and interest rates down their clients’ throats. Individual borrowers have no other option than to swallow the terms demanded by the banks. As individuals become more debt-ridden, local banks became wealthier and pay their employees with salaries envied by even international banks. Employees of domestic banks get some of the highest salaries in the world, according to studies. A bank job is one of the most desired by job seekers because of its high salary and security.
Bankers should be ejected from their comfortable chairs. Authorities are searching for partners to sell Woori Bank and Korea Exchange Bank. The criteria should be simple. The local industry must create banks competent to compete on the global market. Banks are the most hierarchic and closed organizations in the corporate community. And such self-indulgence hampers progress in the industry. When necessary, banks must open up to outside experts to get some fresh air into the industry. Banks must hire personnel without bias in background, education and nationality if they really want to recreate themselves.
Banks have a heavy debt to pay taxpayers for years to come. If they genuinely want to make amends, they must turn themselves into competitive players and return profits to their individual borrowers.
*The writer is a professor of economics at Sungshin Women’s University.
Translation by the JoongAng Daily staff.
by Kang Suk-hoon