2 weeks Ago By [email protected](KoreaTimes)
Representatives Jin Sung-joon, left, and Park Chan-dae of the main opposition Democratic Party of Korea attend a party meeting at the National Assembly in Yeouido, Seoul, Tuesday. Yonhap By Lee Kyung-min The business practices of local commercial lenders are coming under intense scrutiny, triggered by their record-high net income over the past few postpandemic years of monetary tightening, market watchers said Tuesday. Most contentious are the calls to mandate the public disclosure of their spread calculation formula by law, railroaded by the main opposition Democratic Party of Korea (DPK).
The opposition-majority National Assembly could in theory pass it into law by the end of the year. Spread is the difference between the Bank of Korea (BOK) key rate, a borrowing cost for the lenders and the rate their customers pay. Banks charge the add-ons based on borrowers’ credit, loan maturity and other terms and conditions for profit.
Also at issue is a potential expansion of “mutual growth funds,” a government initiative to share a certain portion of their net profit to help reduce interest costs for low-income earners and vulnerable groups of borrowers. The contribution of the country’s lenders for the funds exceeded 2.1 trillion won ($1.
6 billion) as of end of last year. Banks say the "politically charged, strong-arming" move lacks consideration for their customer credit risks, business and cost strategies, wildly undermining their autonomy. The financial authorities at large share a similar stance, calling the legislation antimarket and therefore a violation of the market principle of supply and demand, which they say will come at the expense of the country’s global standing as an aspiring capital market leader.
Read More Banks may have to cough up $1.4 billion in 'windfall tax' 4 financial groups register record earnings on strong interest income Hana Financial registers strong Q3 net income, vows to bolster shareholder returns to 50% by 2027 Financial groups report record-high net profits in Q3 despite declining interest margins “We are deeply concerned,” an official at one of the country’s top commercial lenders said on condition of anonymity. “The demand is nothing short of strong-arming banks to give up their corporate secrets altogether — let alone the absurdity of the method in a market-oriented economy.
” The comment followed the DPK-led Oct. 31 legislation proposed to reduce the burden of high interest rates. At the heart of the bill is mandating the disclosure of how spreads are set, removing the discretion of the banks entirely.
Previously, banks could cite deposit insurance premiums and loan provisions as factors that raise the spread. The Korea Federation of Banks, the central control body of the commercial lenders, revised the policy last year to exclude the two from the mix, but the main opposition is now going a step further to exclude other “legal costs” including education tax and fund contributions. “No advanced economy in the world allows this sort of intervention.
The financial market should be governed by supply and demand, not political motivations," the official said. Whether the disclosure will benefit the end-consumer is far from a foregone conclusion, in his view. “Even if we make the formula public, this will not necessarily translate into a significant lowering of end-consumers’ rates.
It will hurt our business in the form of lower profit margins in the short term and undercut the government's Corporate Value-up drive in the long term.”.
