[Reporter’s Notebook] Is the Rise in Household Loans the Banks’ Fault?... Are Banks to Blame?

Banks Under Pressure Amid Tightening Regulations
Calls Grow to Avoid Shifting Policy Failures onto the Banking Sector

[Asia Economy Reporter Park Sun-mi] A financial institution that accepts deposits and uses that money as capital for loans, bill transactions, securities underwriting, and other business activities. This is the dictionary definition of a bank. But is this really the case?

As the low interest rate trend continues and deposit interest rates have fallen to the 0% range, banks have found it increasingly difficult to attract deposits, and under growing pressure from financial authorities, they are cautious even with lending. This is why there are claims that banks are losing their original functions due to continuous regulations.

On the 30th of last month, banks, which tightened household loans, entered additional regulations starting from the 14th. This followed a recent warning from the Financial Supervisory Service, where the Deputy Director summoned senior executives (vice president level) in charge of household loans at commercial banks and urged them to "strictly adhere to the household loan total volume management targets."

The reasons for the increase in household loans are clear: the surge in urgent fund demand from ordinary households due to the rapid rise in real estate sales and jeonse prices, decreased household income caused by the failure to control the novel coronavirus infection (COVID-19), and the resulting shortage of living expenses. However, startled by debt investment (debt-financed investment) and Eolggeul (pulling together every last bit of money), financial authorities are twisting the banking sector by emphasizing total loan volume control. It appears as if the responsibility for the increase in household loans is being shifted from government policy failures to the banks' failure in loan management.

Banks, which have become culprits after simply performing their original duties, are in a difficult position.

Unlike overseas banks, where interest income accounts for 50-60% of total profits, domestic banks have a profit structure where interest income exceeds 80% of total profits, so loan regulations inevitably lead to a deterioration in bank profitability.

Even if banks try to expand non-interest income through fee income instead of relying on traditional interest margin earnings, it is not easy due to the financial authorities' pressure regulating the sale of high-risk financial products by banks following the private equity fund incident. Strategies to improve operational efficiency and reduce costs by consolidating branches can help improve bank profitability, but these efforts are also hampered by supervisory authorities' instructions to refrain from closing bank branches.

Banks, which already face the challenge of surviving competition with Big Tech (large information and communication companies) that are eyeing the financial industry, now find themselves in a difficult situation where they must maintain both soundness and profitability while enduring various regulatory pressures from the government.

If financial risks increase, the blame will once again be aimed at the banking sector. We hope that policy missteps will not lead to the shifting of responsibility onto banks.

This content was produced with the assistance of AI translation services.