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Banks and telecommunication players’ monopolistic profits

Banks and telecommunication players’ monopolistic profits

Posted February. 16, 2023 07:47,   

Updated February. 16, 2023 07:47


The South Korean government held this year’s first emergency meeting for the economy and the livelihoods of the public to discuss measures to promote competition in the financial and telecommunication industries, which are under criticism they make easy money in the oligopolistic system. The measures are meant to encourage competition to keep in check the banks that pay out excessive bonuses to their employees with loan-deposit margins and telecommunication companies that make profits from high-priced fee systems.

Five major banks in South Korea – KB Kookmin Bank, Shinhan, Hana, Woori, and Nonghyup Bank – made over 18 trillion won in profits last year, over 90 percent of which is earned from the difference between high loan rates and low deposit rates. It is a much higher figure than banks in advanced countries, including the U.S., whose share of interest earnings is less than 70 percent. With this easy money, executives and employees of banks received bonuses equivalent to 300 to 400 percent of their base pay, and over 2,200 employees who voluntarily resigned last year took 0.6 to 0.7 billion won as special and legal retirement pay.

The telecommunication industry, which is dominated by SK Telecom, KT, and LG Uplus, also recorded over four trillion won in operating profits for two consecutive years, largely thanks to a sharp increase in the number of customers who signed up for expensive 5G plans. The telecommunication companies are offering plans with either very little or a large amount of data rather than something in the middle, which is suitable for average users who use 50 gigabytes of data per month. They make profits by leading customers to sign up for more expensive plans.

The bank and telecommunication industries have in common that both require the government’s approval. Once approved, it is not easily reversed. They try to jointly defend against margin loss and seek stable profits once the oligopolistic structure is in place. Previously, the government and the political circles put pressure on banks to lower loan rates and on telecommunication companies to offer low-priced plans, but such efforts did not make much impact. It only led to controversies about government control of companies, and companies waited until such difficult times would pass.

To change the situation, a system in which banks and telecommunication companies voluntarily consider offering cheaper and more improved services should be created. The solution is to lower the barrier in the industries and nurture new entrants to promote competition. The government should relax the separation of banking and commerce to encourage new players to enter the financial industry and accelerate the selection of the fourth telecommunication player, which is underway, to promote competition.