Banks Reap Record Profits from Soaring Interest Rates

  • By Kim Ji-seop

    November 02, 2023 11:36

    Banks are reaping huge profits from soaring loan interest rates and face accusations that they benefit from the pain and suffering of cash-strapped Koreans.
    The interest profits of the country's top five banks soared 22 percent last year to a combined W36.2 trillion, according to the Korea Federation of Banks on Wednesday (US$1=W1,357). That is equivalent to the total market capitalization of Korea's top automaker Hyundai.
    Banks post new record earnings every year regardless of interest rates as their strategy of offering loans at high rates and paying low rates on deposits paid off handsomely, while a high entry barrier to the financial industry means they have no competition to underbid them and can essentially do as they please.
    The entry barrier is so high that no new all-round bank has been allowed to open in Korea since the now-defunct Pyeonghwa Bank in 1992, with the exception of online-only lenders Kakao Bank, K-Bank and Toss Bank. Yet the average amount of social contribution by the top five lenders over the last five years is just over W1 trillion.
    The average monthly interest payments of each household rose 43 percent on-year in the first quarter this year to W124,000, according to the Bank of Korea, and banks have benefited handsomely.
    They have also fanned public anger by paying themselves huge bonuses for the unearned windfall. The top five lenders paid out W2.3 trillion in bonuses in 2022, up 20 percent from 2019. As a result, their average annual salary stood at W110 million last year, and the average salary at Korea's 18 commercial banks also surpassed W100 million.
    Banks have also been handing out fat compensation packages for voluntary retirement. The top five laid off 2,357 workers last year through voluntary retirement and gave each of them W355 million to take home.
    But when faced with criticism, banks claim that their profit margins are lower than in advanced countries and cited Citibank, which pulled out of the Korean retail banking market due to low earnings.
    But many Koreans do not buy these excuses after banks took a lot of taxpayers' money to bail them out during the 1997 Asian and 2008 global financial crises.
    "Banks should increase their social contributions by creating a fund using some of their profits to help cash-strapped small business owners or others struggling financially or by writing off some of the debts of borrowers who face tough times," said Ha Joon-kyung, an economist at Hanyang University.
    • Copyright © Chosunilbo & Chosun.com
    Previous Next
    All Headlines Back to Top