SEOUL – Commercial banks in South Korea will provide at least a combined two trillion won (S$2 billion) to support self-employed and mom-and-pop business owners as pressure mounts from regulators and politicians to share profits from higher interest rates.
All 18 lenders in this category, including Kookmin Bank, Woori Bank and Shinhan Bank, will participate based on each bank’s net income, according to a joint statement from the Financial Services Commission, Financial Supervisory Service (FSS) and Korea Federation of Banks. Korean units of Standard Chartered and Citigroup will also join the programme.
Small business owners will get a cash refund to the tune of 90 per cent of the interest paid in excess of 4 per cent, up to a limit of 200 million won in loans for one year. The total refund limit is three million won per borrower. The top five banks’ burden is estimated at 200 billion to 300 billion won per bank, according to the statement.
Korean banks have faced criticism that they booked “easy” income from higher interest rates while small businesses and vulnerable borrowers suffered from the cost-of-living crisis amid inflation. FSS governor Lee Bokhyun said in November that the combined operating profits of banks in the third quarter were bigger than those of Samsung Electronics, LG Electronics and Hyundai Motor, adding that the banks’ interest income is expected to reach 60 trillion won this year.
South Korea’s main opposition Democratic Party has even sought to introduce a windfall tax on banks to improve the livelihood of people suffering from high-interest rates with the tax revenue created through contributions from the banking sector. BLOOMBERG