Our banks are greedy too

Banks, who are expected to post their largest-ever net profits, are under fire for their pay-outs of extravagant bonuses and dividends. Some have already paid special allowances, and some unions are pushing for bonuses. A labor union is threatening to strike if salaries are not upped by more than 8 percent. But all this money talk is demoralizing to the public. Banks have also cut off new loans and hiked lending rates. Their improved financial sheets come at the average citizen’s expense.

Financial Supervisory Commission Chairman Kim Suk-dong warned of excess greed and moral hazard in the financial sector, advising against profligacy with the profits banks earn. He gave a reminder that banks were bailed out with 160 trillion won ($138 billion) of public funds during the financial crisis. “They are disqualified to serve clients if they have forgotten that they exist because of the public’s sweat and blood,” he said. His comments may have been a little extreme, but they contain some truth.

Banks may ask what is wrong with rewarding employees and shareholders with their own profits. They are, in fact, following market principle theory. Nobody is blaming banks for doing well. The problem is the profit-making process. Just three years ago, the entire economy shook in fear of the repercussions from the Wall Street-sparked financial meltdown. We mostly feared for a banking sector with excess loan ratios and large foreign debt levels.

The government again had to come to the rescue. The banks weathered the storm thanks to the taxpayers. Now that business is running smoothly at the expense of consumers, they presume it was all their doing and are poised to reward themselves.

The banks profits primarily come from the widening gap in lending and deposit rates. They have hiked up lending rates while keeping the deposit rates unchanged. The gap generates 80 percent of the banks’ net profit.

Banks keep saying they will fix this structural problem by raising their competitiveness and going global. But that has been all talk. The only out of the ordinary thing that has occurred this year were the much-publicized inner power struggles at KB and Shinhan Financial Holdings, which were hardly edifying.

Banks have bigger priorities than rewarding employees. They should stock up reserves for rainy days, reduce nonperforming loans and if they still have some left, pay back the government. They should realize the “Occupy Wall Street” movement can grow here too.