Korea to roll out measures to break banking monopoly

Finance

Published: 13 Nov. 2023, 11:30

Korea to roll out measures to break banking monopoly

President Yoon Suk Yeol talks with small business owners, homemakers, office workers and younger adults at a cafe in Mapo District, western Seoul, on Nov. 1. [YONHAP]

The government is set to announce a series of measures later this year to break the monopoly held by banks as they have been raking in record profits from interest income, according to sources from the presidential office on Friday.

This decision follows President Yoon Suk Yeol's strong criticism of the monopoly structure among Korean lenders, as banks have reported all-time high earnings due to increased interest margins amid the central bank's hawkish rate hikes.

Yoon expressed concerns about the situation during a meeting with small-sized business owners in Seoul earlier this month, pledging government support to address practices that harm the vulnerable.

Banks under pressure to lower loan interest rate after president's remark

According to the Financial Supervisory Service, Korea's five major commercial banks recorded a net profit of 15.65 trillion won ($11.89 billion) for the first three quarters of 2023, following record-high profits for 2022.

The presidential office and the Cabinet are currently reviewing ways to break the monopoly and are expected to announce measures within the year, the sources said.

The proposed improvements include promoting competition among banks to reduce market interest rates and expanding financial infrastructure to prevent individuals with low credit ratings, mostly the younger generation, from suffering from high interest rates.

However, experts are divided on the practicality of banks lowering their interest rates, citing the structure of the global economy.

"Various unnecessary costs and other binding conditions — imposed by the banks — should be eliminated, such as abolishing early redemption fees," a financial expert said.

Meanwhile, the presidential office reportedly opposes the main opposition Democratic Party's push to introduce the so-called windfall tax for banks. A windfall tax is a one-time surtax imposed on companies deemed to have made unreasonably high profits.

The government believes that a windfall tax does not align with the country's corporate tax system and is not in line with a market economy, the source said.

BY KIM JU-YEON, YONHAP [kim.juyeon2@joongang.co.kr]