Profit-spinning banks pressured to ease debt burden

Finance

Published: 20 Nov. 2023, 18:33

Profit-spinning banks pressured to ease debt burden

Financial Services Commission Chairman Kim Joo-hyun speaks in a meeting attended by the heads of eight financial companies in central Seoul on Monday. [YONHAP]

The Financial Services Commission (FSC) is pressuring organizations within the industry to introduce practical solutions that can reduce borrowers’ burden amid high interest rates.

FSC Chairman Kim Joo-hyun on Monday told chiefs of financial companies to bring out solutions that can benefit borrowers to the “maximum range” that does not hurt their soundness.

Kim noted growing difficulties felt by the self-employed at times of high interest rates, elevated inflation and the slowing economy.

“At times of concern for the collapse of the local commercial district due to the rapid growth of interest payments in a short period, the financial circle, especially banks, are continuing to post record profits,” Kim said in a prepared remark during a meeting with the heads of eight financial companies, including KB, Shinhan, Hana and Woori financial groups, in central Seoul.

The FSC “requests the financial circle voluntarily draws up support measures that match people’s expectations at times of legislative discussions on if a windfall tax should be introduced,” he added.

The meeting was held as banks face increasing pressure to cough up their interest profits. The government has been criticizing banks’ record profits amid people’s growing debt burden, threatening to break up the oligopoly in the banking industry and noting it has a public role.

Banks’ net profit in 2022 was 17.7 trillion won ($13.7 billion), up from 13.9 trillion won a year earlier.

The main opposition Democratic Party seeks to impose a windfall tax on the interest income that banks were able to generate through the rapid rise of interest rates since late 2021.

“It all depends on how the industry responds,” the FSC added, noting the need for the financial companies to respond in a “flexible and sophisticated” manner.

Financial companies in response vowed to draw up specific support measures “that could meet the eyes of people’s expectations” within this year.

The Financial Supervisory Service (FSS) on the same day touched on the growing risks banks face.

“Net profit at domestic banks has expanded after 2022 on a rise in interest rates and an expanded interest profit, but the profitability is gradually on a decline, shown by its net interest rate margin, return on equity and return on assets,” the FSS said in a statement.

“Banks’ bad debt expense is also expected to grow due to a prolonged high interest rates and a delay in global economic recovery.”

Banks reported 5.4 trillion won in net profit in the third quarter, up 29 percent on year, according to data from the FSS.

Their interest profit was 14.8 trillion won, up 3.5 percent over the same period.

BY JIN MIN-JI [jin.minji@joongang.co.kr]