Commercial banks should innovate themselves

The Financial Supervisory Service (FSS) published a statement Tuesday, which reveals that domestic banks had earned 10.1 trillion won in preliminary interest income in the first quarter of the year alone. This marks the fourth consecutive quarter when the banks’ interest income reached 10 trillion won. Even when manufacturing companies had to go through struggles due to shrinking exports and revenue last year, the country’s commercial banks made 40.3 trillion won on interest income, part of which went to the pockets of some executives and employees in the form of an increased salary and bonus.

We can’t blame banks, which serve as an important pillar of the financial industry, for making money. However, South Korean banks have long been criticized for making an easy gain through monopolistic operations within the framework of the government regulations. While net interest margin accounts for about 60 percent of banks’ total earnings in developed countries, the figure stands at around 90 percent in South Korea. An impression generally shared among bank customers is that deposit rates rise only marginally while lending rates soar fast, and it is true that such manners enabled banks to make 10 trillion won every quarter.

For the country’s economy to grow, money should be injected in right places at a right time and banks play the biggest role in doing so. Yet, South Korean banks, which lack efforts and skills to eval‎uate and discover businesses, collect loans or dispose of pledged assets of small and medium sized companies as soon as these firms show signs of getting in difficulties. Such a behavior is no different from taking away someone’s umbrella as it starts to rain.

Therefore, now is the time for the bank industry to change its fundamentals like manufacturing or service industries, which have made efforts to transform themselves to survive the intense global competition. Banks should not confine their job to making money based on interest income, but expand the sources of revenue by seeking investment and developing various services. In addition, they need to actively explore the possibility of making inroads into other countries. It may produce an innovative game changer in the bank industry. Still, as much as banks’ efforts are needed, the financial regulators’ perception should be changed in advance. As it has pushed for the so-called “innovative finance,” the government must carry out acts befitting the policy stance, such as cutting unnecessary red tape and making more room for banks to maneuver.