[Editorial] Pay heed to public demand for pain sharing

The question of commercial banks being “public assets” has been raised since lenders indulged themselves with fat bonuses from lucrative business off the jump in interest rates. Their exploitative nature has come under the limelight after public condemnation from 16 organizations representing small- and mid-sized enterprises. Kim Ki-mun, head of the Korean Federation of SMEs, criticized their act of “taking away an umbrella during a rainstorm” by lowering the lending limit or raising interest rates, although 86 percent of borrowings by SMEs and small merchants is backed by safe security such as collateral or guarantee receipts.

Commercial banks cannot easily bark back. SMEs and the self-employed endured the hardships during the Covid-19 period and are suffering more from high interest rates. Banks alone are enjoying the boom from monetary tightening. Loans to SMEs that were borrowed at more than 5 percent interest rate took up 83.8 percent in November last year, or for 28.8 percent for full 2022, which is nearly 10 times higher than in the previous year and the heaviest in nine years.

It shows how fast banks translated the higher rate burden onto SME borrowers. Loans to SMEs surged 33 percent to 953 trillion won ($734.2 billion) from 716 trillion won at the end of 2019. SMEs are being pushed to the cliff as their larger debt comes with higher interest cost.

Commercial banks could argue the business is legitimate during the rising rate environment. But while the Bank of Korea (BOK) pushed up the base rate by 2.25 percentage points from 1 percent to 3.25 percent last year, the difference in bank deposit and lending rate widened from 2.21 percentage points to 2.55 percentage points. The difference fed bank profit. Interest income at five bank majors increased more than 20 percent year-on-year to 40 trillion won last year.

Interest income took up more than 96 percent of their total operating income for Shinhan bank and KB Kookmin Bank. The share was 94.3 percent for Hana Bank. It is no wonder they are being called exploitative. Still, banks have been meager in social responsibility. They have shuttered their outlets and have been neglecting the senior and weaker class.

Banks claim that all the hype about their lacking public role and excessive government intervention are scaring away foreign investors. But the selling spree on bank shares stems from the fact that banks profiteered entirely on social pain. They have exposed their weak operation of heavily relying on interest income.

Banks must ruminate on their fair share of social pain and public role to become more mature players. The government also should refrain itself from outdated meddling and instead focus on rationalizing regulations and guidance so that banks can play a proper role.