Is Banking Interest Business? How Should We View It?

[Asia Economy Jeong Jae-hyung, Economic and Financial Editor] Banks are being criticized for excessive interest profiteering during the period of rising interest rates. While some argue that banks should be seen as an industry and profit-seeking is natural, others believe that finance should be regarded as an economic infrastructure with a strong public character, as the saying goes, "Finance is the lifeblood of the economy."

In South Korea, until the 1980s during the era of economic development, finance was viewed as a tool for industrial advancement. The government controlled banks and, amid a constant shortage of funds, concentrated financing on export companies and large corporations. This was based on the theory of unbalanced growth, which argued that leading industries should receive focused investment because of the strong linkage effects that certain industries have on the development of others.

Finance was recognized as an industry in the 1990s with the liberalization of interest rates. Before that, deposit and loan interest rates were the same across banks for the same credit rating. Interest rates for financial institutions such as banks, insurance companies, and credit unions were determined by the Ministry of Finance. After the completion of the four-stage interest rate liberalization in 1997 and the easing of government-controlled finance following the foreign exchange crisis, financial practices underwent a radical transformation, and finance became a sector to be nurtured as an industry. The term "financial institution" began to be replaced with "financial company." The perception that service industries including finance should be actively developed under government leadership also spread.

In South Korea, public opinion on finance seems to be balanced between "it should be regarded as an industry but also has a strong public character." On the 23rd, Lee Bok-hyun, Governor of the Financial Supervisory Service, stated, "We have no intention and cannot interfere with the market’s autonomous interest rate adjustment mechanism," but also said, "According to the Constitution and laws, including the Bank Act and related regulations, banks clearly have a public function." We have listened to the specific stance of the Financial Supervisory Service, the banks’ defenses, and the voices of public opinion.