Koreans to follow protesters in NY in pushing for financial reform

The Korea Financial Consumer Group and other civic groups will hold a protest against financial companies following demonstrations in Wall Street in the wake of growing criticism of Korean financial companies as greedy.

Despite rising fears over a global recession in the wake of the fiscal crisis in Europe and the sputtering U.S. economy, Korean banks are posting record net profits. Yet suspicion is growing over their stellar performances.

Korean financial regulators delivered the message that banks should set aside cash in good times for a potential economic crisis instead of handing out large dividends.

Half of the 12 demands proposed by the “Occupy Wall Street” protesters in New York are closely related to Korea’s financial reform agenda. Many say Korean financial regulators and financial companies should devise an idea on financial reform plans such as excessive compensation, debts of college graduates, stronger consumer protection, and limits on off-shore funds.

Eighteen Korean banks recorded a combined 10 trillion won (8.55 billion U.S. dollars) in net profit in the first half this year. At this pace, they will post 20 trillion won (17 billion dollars) in net profits for 2011, breaking the previous record of 15 trillion won (12.8 billion dollars) set in 2007.

The banking industry expects banks will pay employees year-end bonuses of 50 to 150 percent of their monthly salary. Many Koreans are angry that banks are rescued by taxpayers’ money in bad times but pay bonuses only to their shareholders and employees in good times.

Korean college students also carry heavy student debts like their American counterparts. Financially-strapped college students are known to borrow money for tuition from loan sharks, who charge interest of 40 percent.

The average college student in Korea owes 1.6 million won (1,370 dollars) to loan sharks because of tougher loan requirements at banks. Certain Korean financial companies have tried to leave the student loan business because of bad loans instead of increasing loans for students.

The protestors in the U.S. are demanding that consumer protection organizations should be reinforced to rescue customers negatively affected by crooked financial companies, and this could greatly affect reform of the Korean financial regulatory system.

Hope for reform is low, however. President Lee Myung-bak ordered the Prime Minister’s Office to initiate a financial reform plan criticizing poor supervision of the Financial Supervisory Service over the collapse of savings banks, but the creation of the Financial Consumer Protection Agency was pushed down on the list of the reform plan announced in August.

The Financial Services Commission decided to set up the consumer agency under its umbrella, but many doubt that the agency can make independent decisions.

“Korean banks tend to relish profits though they made easy money thanks to the savings-lending margin and equity stock margins,” a high-ranking financial regulator said. “We need a consensus that part of the profits should be returned to society if the profits are gained with the benefit of an oligopoly.”

legman@donga.com