[2022 National Audit] BOK's Policy Finance Yields 2.5 Trillion Won Profit for Commercial Banks Over 5 Years 'Windfall'

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] An analysis revealed that commercial banks earned more than 2.5 trillion won in interest profits over five years by utilizing the Bank of Korea's financial intermediation support loan system.

On the 7th, Jang Hye-young, a member of the National Assembly's Planning and Finance Committee from the Justice Party, analyzed data submitted by the Bank of Korea and found that 16 commercial banks lent a total of 101.9 trillion won through the financial intermediation support loan program from 2017 to 2021.

The total interest income over five years, based on the average loan interest rates of each program, is estimated to be about 3 trillion won. After deducting the procurement cost of 483.2 billion won due to the Bank of Korea's support interest rate and losses from delinquencies, the profit is estimated to be approximately 2.5 trillion won.

Commercial banks are expected to earn more than 1.3 trillion won in profits from the financial intermediation support loan program executed this year. The loan scale increased due to COVID-19 and the economic crisis, while the procurement interest rate from the Bank of Korea significantly decreased, greatly expanding the profit margin.

The Bank of Korea's financial intermediation support loan system was implemented with the purpose of providing policy finance at low interest rates to local small and medium-sized enterprises and small business owners.

According to the analysis by Representative Jang's office, the ratio of procurement costs to interest income for the 16 commercial banks from 2017 to 2021 was 38.6%, whereas the ratio for financial intermediation support loans was only 16.1%. This year, the procurement cost ratio relative to interest income for general loans was about 35.3% as of last month, but for financial intermediation support loans, it dropped to 5.7%.

The Bank of Korea also evaluated internally that, compared to government policy funds, its financial intermediation support loans have strengths in terms of speed and limits, but the effect of interest rate reduction was found to be low.

Representative Jang said, "Commercial banks are profiting excessively in the process of expanding the Bank of Korea's policy finance," and added, "It is necessary to seek improvements to the financial intermediation support system and to expand the role of policy funds with low interest rates."