[Unstoppable SME Loans] "Not the Time for Bonus Parties, Banks Must Prepare for Bad Loans"

Record High Net Profit Last Year Including KB Kookmin and Shinhan Joining the 4 Trillion Club
Performance Bonuses and Dividend Payout Ratios Increased, Such as 300% of Monthly Ordinary Wages

Unfavorable Views from Political Circles and the Public
"Once the COVID-19 Situation Ends, Defaults in Vulnerable Industries Will Worsen"
"Record-Breaking Net Profits Should Be Used to Absorb Shocks"

[Asia Economy Reporter Shim Nayoung] Amid a surge in loans to small and medium-sized enterprises (SMEs) and self-employed individuals after COVID-19 and growing risks of defaults, there are criticisms that it is not the time for banks or secondary financial institutions to celebrate with performance bonuses or dividend distributions despite recording record-high net profits. Banks are urged to retain earnings to prepare for potential increases in defaults among SMEs and self-employed borrowers.

Last year, the five major financial holding companies?KB, Shinhan, Hana, Woori, NongHyup?and IBK Industrial Bank of Korea all recorded record-high net profits. KB and Shinhan joined the 4 trillion won club for the first time, Hana joined the 3 trillion won club for the first time, and NongHyup and IBK joined the 2 trillion won club for the first time.

Their strong performance was largely influenced by 'loan growth' and 'benchmark interest rate hikes.' The increased loan demand from SMEs, self-employed individuals, and households struggling due to COVID-19 was a major factor behind the record profits. The rise in interest rates further increased borrowers' interest burdens.

Moreover, banks' interest income accounted for 90%, marking the highest level in seven years. Although bank CEOs have emphasized generating 'non-interest income,' they ultimately achieved record-breaking results through the easier 'interest business.' Professor Kim Daejong of Sejong University's Department of Business Administration said, "In a still difficult economic environment, banks have essentially been sitting back and gathering money."

Banks are expanding performance bonuses and dividends with their record-high net profits. KB Kookmin Bank decided to pay performance bonuses at 300% of the monthly ordinary wage, up from the previous year (200% of ordinary wages + 1.5 million won). Shinhan Bank and Hana Bank also pay performance bonuses at about 300% of the base salary. Woori Bank's labor and management agreed to pay management performance bonuses at 200% of the base salary. Additionally, to boost morale, they agreed to add 100% of the base salary plus 1 million won, making the total performance bonus exceed 300% of the base salary.

Record-high dividends are also expected to continue. KB Financial set its dividend payout ratio at 26.0% and declared a record-high dividend per share of 2,940 won. Shinhan Financial's dividend payout ratio is also at a record high of 25.2%, with dividends per share set at 1,960 won. Hana Financial raised its dividend payout ratio to 26.0%, the pre-COVID level, and set dividends per share at a record-high 3,100 won. Woori Financial set its dividend payout ratio at 25.3% and dividends per share at a record-high 900 won. Financial holding companies plan to increase dividend payout ratios up to 30% in the future.

The public's view of these banks is unfavorable. One official said, "When a crisis hits and losses increase, banks claim to be 'economic infrastructure' and receive government support, but when they earn large profits in normal times, they share performance bonuses among themselves," adding, "It reminds me of the phrase from the 2008 financial crisis: 'Privatize profits and socialize losses.'"

There are also strong voices in the political sphere calling for restraint on excessive performance bonuses and dividends. Yoon Changhyun, a financial policy expert from Yoon Seok-yeol's campaign and a member of the People Power Party, said, "Once the COVID-19 situation ends, the accumulated loans to SMEs and self-employed individuals will be properly reviewed, and large-scale defaults in some vulnerable industries may materialize," adding, "Banks should use their record-breaking net profits not for performance bonuses and dividend celebrations but to resolve bad debts."

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