Shame on greedy banks

Banks are up to their old cunning practices. They have followed suit after the central bank cut its key interest rate by a quarter of a percentage point to 2.25 percent earlier this month. But while marginally lowering loan rates, they have slashed deposit rates. Banks have also left most of the return rates for early or deferred payments untouched. The Bank of Korea cut the benchmark rate for the first time in 15 months and to the lowest level in four years to stimulate domestic spending that has been dragged down by the Sewol ferry crisis. But the benefits may not trickle down to most consumers due to the noncompliance of banks.

Banks scurried to move in sync with the Bank of Korea’s rate cut on Aug. 14, offering products yielding returns in the 1 percent range. But they acted even faster to reduce deposit rates. For instance, NH Nonghyup Bank reduced its products that offer yields corresponding with market rates by 0.35 percentage point. Woori Bank also downscaled deposit rates for corporate clients by 1.2 to 1.9 percentage points. Citibank Korea and Standard Chartered Korea also cut down on their deposit rates by 0.3 to 0.4 percentage points. Several banks went as far as shaving beneficial rates for large deposits.

In contrast, banks remained passive in acting on their lending rates. Shinhan Bank was the only one among commercial lenders to lower its lending rate to match the central bank’s cut of a quarter of a percentage point. Most other banks pretended to follow, but kept the cut to within 0.02 to 0.09 percentage points.

As banks mostly rely on savings and loans for their revenue, policy rate cuts can hurt their profits. Bank revenues could be reduced by 220 billion won ($215.58 million) to 330 billion won a year from the rate cut. The banks’ move to lower their saving rates to minimize their losses is understandable. But they have gone too far. Commercial banks get 80 percent of their revenue from the spread between deposits and loans. They are digging into the pockets of consumers in order to earn money for themselves. Without fundamental changes in their revenue diversification, banks will continue to capitalize on the central bank’s rate move as a means to generate profit.

JoongAng Ilbo, Aug. 25, Page 34