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| Getty Images Bank |
By Lee Min-hyung
Korea's commercial banks have called the idea of big companies contributing funds to ease the financial burden of coronavirus-hit merchants "unfair," saying the move would undermine the integrity of the capital market.
The ruling Democratic Party of Korea (DPK) was the first to float the idea, with its chairman Lee Nak-yon suggesting that companies that generated profits last year should establish a joint fund with the government and provide financial support for the self-employed and small firms hit hard by the pandemic shock.
Following this plan, the nation's financial companies are emerging as "targets" of the government's possible move as they reported a cumulative trillions of won in profits last year. The nation's top four banking groups ― KB, Shinhan, Hana and Woori ― are estimated to have generated around 11 trillion won in net profits in 2020.
But major lenders seemed to have expressed unwillingness to back up the plan as they are private companies with obligations to their shareholders.
"Most banks here can say for sure that they have fulfilled social responsibility throughout 2020 and joined hands with the government amid the nationwide virus panic. But it is too excessive for the authority to press us even to share profits," a senior official from a major bank said. Every firm's top management goal is to maximize profits for the best interest of shareholders, according to the official.
Realistically, it is difficult to imagine major lenders gladly accepting a proposal that prevents management from making independent decisions and forces them to work against the benefit of major shareholders ― which include foreign companies, the National Pension System and other retail investors ― the official said.
"Even if the government steps up pressure on the CEOs of banks here, they cannot comply with the call on their own, as this is a breach of trust unless the decision was approved by shareholders."
He advised banks to remain open to discussion on fulfilling other forms of social commitment, but stated that the profit-sharing scheme would be a step in the wrong direction for the capital market.
The ruling party and the government continue to underline that the profit-sharing will be carried out on a "voluntary" basis from companies. But banks remain concerned that they could be forced to contribute. Some ruling party lawmakers are working to propose the relevant bills but President Moon Jae-in earlier welcomed the idea of corporate contributions during his New Year's press conference. Moon said it is "highly desirable" for companies to play a part in building the fund and help those hit hardest by the COVID-19.
"For now, the government and financial authorities have yet to share detailed plans regarding the drive, but the proposal seems to have gone too far at a time when banks have spared no efforts to help those in need throughout 2020," the source said. "Banks have fulfilled their social responsibility last year and will continue to do so. But the proposal should never be mandatory, as it will pose a serious financial burden for us amid widening uncertainties in the banking industry amid the prolonged low interest rates and market saturation."
