[Editorial] Are banks meeting their social responsibility?

Unsurprisingly, banks enjoyed an extraordinary bumper year in 2022 thanks to rapid rises in interest rates. With top lenders under their arm, Shinhan Financial Group earned a net 4.64 trillion won ($3.6 billion), KB Financial Group 4.41 trillion won, Woori Financial Group 3.17 trillion won and Hana Financial Group 3.63 trillion won. Their best-ever bottom lines owed largely to a jump in interest income that more than offset the fall in their non-interest income.

As banks came under fire for making easy money off higher loan charges to their clients, including small and mid-sized companies, those financial groups beefed up their shareholder return. But they have not met their social responsibility, given generous self-rewards by handing out bonuses to employees three to four times their salaries.

Banks need to take the lead on social responsibility instead of taking action under pressure from financial authorities. Last week, the financial authorities announced measures to raise the efficacy in the rights of individual clients and corporate borrowers to demand lower interest rates. The mandate has been in place since late 2018 to enable customers to ask for a rate cut to reflect improvement in their credit and repayment capacity.

But in the first half of 2022, banks only lowered the rates for 28.8 percent of their clients whose credit has improved. Authorities have required lenders to notify borrowers that they have the right to demand better lending terms when their income or credit score rises. Authorities would not have to interfere if banks had taken voluntary actions.

The standoff between financial authorities and financial groups over the appointment of chiefs has also been an annoyance. The Shinhan Group chairman resigned just before he was due to take up his third term. The Woori Financial Group chair also withdrew ahead of a third term under pressure from financial authorities. Financial group heads have been criticized for commanding their seat for the third and fourth term. Lack of transparent governance systems and heir-grooming processes have brought about such concentration in the leadership of banking groups.

During a briefing by the Financial Services Commission (FSC) last week, President Yoon Suk Yeol emphasized the public role of banks. Although the public role of banking cannot be denied, financial authorities should exercise restraint and patience so as not to harm the independence of lenders.

Before resigning as an outside director of Shinhan Financial Group, Byeon Yang-ho, former director of financial policy for the Ministry of Finance, pointed out that the financial group has somehow invited government meddling because the board of the group failed in selecting next chairman. His remark is something both the authorities and financiers must pay heed to.