Yoon's "Bank Money Party" Remark Fallout... Will There Be Proposals to Curb Bonuses?

Banks Achieve Maximum Profits from Interest Business 'Their Own Party'
Public Outcry Leads to President's Stern Remarks

Financial Authorities and Banks "Will Swiftly Implement Policies for Ordinary People"
Additional Provision Expansion and Legal Revisions Expected to Curb Performance Bonuses

[Asia Economy Reporter Sim Nayoung] On the 13th, President Yoon Suk-yeol criticized banks for having a 'money feast' and warned the Financial Services Commission to come up with 'win-win finance' measures. Why did he issue this warning? The banking sector interprets it as pressure on financial authorities to swiftly implement the policies announced so far and to provide 'plus alpha' support. There is a high possibility that additional measures such as 'further expansion of loan loss provisions' and 'restraining financial institutions' executives' bonus feasts' will be added.

Banks Took It Easy... Calming the Angry Public

At the senior secretaries' meeting on the 13th, President Yoon said, "The public is suffering greatly due to banks' high interest rates. Since banks have a public utility nature, it is appropriate for their profits to be returned as so-called win-win finance benefits to struggling citizens, self-employed people, and small business owners, and to be used to build solid loan loss provisions in preparation for future financial market instability. The Financial Services Commission should prepare related measures so that the public does not feel alienated by the banks' money feast."

Between the lines, there is an underlying perception that banks have made record profits by 'swimming with their feet on the ground' thanks to interest rate hikes. The net income of the four major financial holding companies (KB, Shinhan, Hana, and Woori Financial Group) announced last week reached 15.9 trillion won last year. As the economy worsened this year and signs of rising delinquency rates appeared, criticism arose among the public as banks showed no intention to increase loan loss provisions and simultaneously news emerged that employees who took voluntary retirement received retirement pay averaging 600 to 700 million won. The president sharpened his tone reflecting the boiling public sentiment.

Authorities to Swiftly Implement Financial Measures

Finance Minister Kim Ju-hyun and other Cabinet members are attending the Cabinet meeting held on the 8th at the Government Seoul Office in Jongno-gu, Seoul. Photo by Kim Hyun-min kimhyun81@

A senior official in the financial sector said, "Haven't the Financial Services Commission and banks already done everything they could announce?" and added, "The president's sudden warning message seems to be intended to raise tension and push for the swift implementation of the measures announced so far."

The Financial Services Commission had previously announced measures to expand low-interest refinancing for the self-employed, Hope Plus credit loans, emergency living expense loans, and special guarantee products for low-credit borrowers during the presidential work report on January 30. Banks also announced last month an additional contribution of 500 billion won to social contribution funds, pledging to consistently spend about 6-7% of their net income on social contributions from this year through 2025.

Bankers' Association: "Additional Expansion of Loan Loss Provisions Needed"
Bonus Payments to Be Restrained Through Legal Amendments

The upcoming additional measures will focus on further expanding loan loss provisions. Kim Kwang-soo, chairman of the Bankers' Association, said, "Since bank interest rates surged last October, the public's interest burden has increased, and signs of rising delinquency rates appeared in the first quarter. From the second quarter, delinquency rates are expected to rise much more sharply. Accordingly, banks will need to use the loan loss provisions they have accumulated so far, so they must build up more provisions in advance."

The delinquency rates of the four major banks last year rose by 0.03 to 0.04 percentage points compared to the previous year. KB Kookmin Bank's rate increased from 0.12% to 0.16%, Shinhan Bank from 0.19% to 0.22%, Hana Bank from 0.16% to 0.20%, and Woori Bank from 0.19% to 0.22%, signaling warning signs.

Measures to restrain large bonus payments are also underway. The financial authorities have proposed a bill requiring financial institutions to disclose the size and calculation criteria of executives' bonuses externally. The amendment to the Financial Companies Governance Act, initially proposed by the government in June 2020, has been included in this year's major work plan.

If the amendment passes, the total amount of executive compensation and bonuses, along with calculation criteria, must be disclosed in annual reports. Listed financial institutions with assets above a certain threshold will also be required to explain individual executive compensation plans at shareholders' meetings. The authorities intend to "prepare ways to restrain financial institutions' executives' bonus feasts amid significant consumer damage caused by private equity fund mis-selling and the increased burden on the public due to rising interest rates."

For employees, it is difficult to intervene this year as labor-management agreements have already been finalized, but if financial supervisory authorities and bank management try to curb excessive bonuses next year, they may face opposition from labor unions.

Most banks have already paid or plan to pay bonuses this year. The bill is expected to take effect from next year if passed. KB Kookmin Bank paid bonuses equivalent to 280% of the base salary and separately paid a special encouragement bonus of 3.4 million won. Shinhan Bank decided to pay 361% of the base salary, of which 300% has already been paid, and the remaining 61% will be distributed as stocks after the March shareholders' meeting. NH Nonghyup Bank also set bonuses at 400% of the base salary.

Hana Bank set a profit-linked special bonus at 350% of the base salary, scheduled for payment around April. Woori Bank's bonus scale for last year is expected to be about 280% of the base salary. Woori Bank signed a wage collective agreement including this content the day before. The payment timing is after next month's shareholders' meeting.

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