Ruling Party Leader's Public Criticism of 'Interest Rates' Sparks Controversy Over Financial Company Management Intervention (Comprehensive)

Lee Nak-yeon, Party Leader, Publicly Criticizes Commercial Banks Over 'Loan-Deposit Interest Rate Spread'
Top Officials Condemn Banks for "Collecting Astronomical Money Without Effort"

Predominant Critical Views on Political Sphere's Move to Control Financial Sector, Undermining Market Autonomy
"Deep Involvement in Market Prices and Private Business Management Decisions Exacerbates Side Effects," Critics Point Out

Lee Nak-yeon, leader of the Democratic Party of Korea, is speaking at the 'Financial Industry Video Conference for Cooperation in Securing COVID-19 Hospital Beds' held at the National Assembly on the 16th. / Photo by Yoon Dong-ju doso7@

[Asia Economy Reporter Kim Hyo-jin] The ruling party, the Democratic Party of Korea, has sparked controversy over whether its specific demands to the banking sector to ease the interest rate spread between deposits and loans constitute excessive political interference in financial companies and markets.

With financial authorities' interventions becoming routine amid the aftermath of the novel coronavirus disease (COVID-19), concerns are rising that the ruling party's vocal involvement has escalated from 'government-controlled finance' to full-fledged 'political finance.'

According to banking and political sources on the 17th, Lee Nak-yeon, leader of the Democratic Party of Korea, urged commercial banks to "pay attention to easing the interest rate spread between deposits and loans" during a 'Financial Industry Video Conference for Cooperation in Securing COVID-19 Hospital Beds' held at the National Assembly the previous day.

It is considered unusual for a specific political party or a prominent figure within the party to officially address detailed interest rate issues directly to key banking officials. Attendees at the conference included Kang Seok-gon, Executive Director of Kookmin Bank; Jo Kyung-sun, Vice President of Shinhan Bank; Hwang Hyo-sang, Vice President of Hana Bank; and Kang Sung-mo, Vice President of Woori Bank, representing the four major commercial banks.

The interest rate spread refers to the difference between deposit interest rates and loan interest rates. Lee said, "There are complaints that the gap between deposit and loan interest rates is too large," and requested, "Please make efforts to reduce the burden on low-income households."

This sentiment was also raised at a previous Democratic Party Supreme Council meeting. Supreme Council Member Noh Woong-rae stated, "If the average deposit interest rate is 1% per annum and the credit loan interest rate is 3.1%, the interest margin is 2.1%. Considering that household debt has reached a record high of 1,682 trillion won, banks are sitting on an astronomical 35 trillion won annually," sharply criticizing the situation.

Noh further urged, "I ask the government to monitor banks' excessive profits and guide them to lower loan interest rates to alleviate the financial burden on low-income households."

Within the banking sector, these remarks are interpreted as pressuring banks and encouraging intervention by financial authorities. A senior official at a commercial bank commented, "No matter how regulated the financial industry is or how significant its social responsibility, there is a business logic as a company," criticizing, "These remarks fail to consider the market principle of supplying more finance to the market based on profits."

Another commercial bank official mentioned the historically low net interest margin (NIM) of 1.4% in the third quarter due to the prolonged ultra-low interest rate environment and expressed concern, saying, "It is very worrisome to portray banks as if they are earning unearned income," and strongly opposed the call to lower loan interest rates determined by market structures, calling it "disconcerting."

Concerns Over Management Interference Amid 'Gwanpia' and 'Jeongpia' Controversies

Concerns about excessive external influence on the financial sector have already reached a high level. Most heads of major financial associations such as the Korea Federation of Banks, Korea Life Insurance Association, Korea Financial Investment Association, Korea Credit Finance Association, and Korea Federation of Savings Banks are filled with 'parachute appointments.' Recently, alongside the 'Gwanpia' (former government officials in private sector) issue, the controversy over 'Jeongpia'?parachute appointments from political circles?has also emerged.

Additionally, the ruling party is pushing for a plan to limit the term of financial holding company chairpersons to six years. The move to legally regulate the tenure of CEOs of private financial companies has sparked fierce criticism from the financial sector as excessive management interference.

Financial holding companies are increasingly troubled as financial authorities repeatedly urge them to refrain from dividends. The authorities' stance is that capital must be accumulated to strengthen loss absorption capacity in preparation for potential bad debts accumulated due to COVID-19 financial support.

Regarding the banking sector's restructuring moves such as consolidating offline branches due to rapid digitalization of the financial industry and the entry of big tech (large information and communication companies) into finance, financial authorities have repeatedly expressed negative views.

Furthermore, comprehensive regulatory policies and legislative initiatives pressuring financial companies continue, including significantly strengthening the responsibility of financial company CEOs in financial accidents, the Financial Consumer Protection Act which infringes on financial companies' litigation rights in disputes, and the Financial Conglomerate Supervision Act, which has sparked controversy over double regulation.

A financial sector official pointed out, "There seems to be an increasing tendency to define financial capital and financial companies as a kind of 'evil' and to tighten regulations first and foremost."

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