South Korean President Lee Jae-myung recently reignited debate over the role of banks by criticizing the idea that financial institutions exist primarily to make profits. He also endorsed remarks by Kim Yong-beom, presidential chief of staff for policy, who described banks as “quasi-public institutions,” while calling for institutional measures to expand lending to middle- and low-credit borrowers.
The appeal of such rhetoric is obvious. Finance carries undeniable public responsibilities. Banks operate under government licenses, benefit from deposit insurance systems backed by taxpayers and rely on central bank liquidity support during times of crisis. Few would dispute that financial institutions should contribute to broader economic inclusion rather than focus solely on maximizing shareholder returns.
But acknowledging the public nature of finance is very different from justifying direct political intervention in how banks allocate capital.
At the core of the debate lies a misunderstanding about the function of profitability and risk management in banking. Banks are not government agencies. They are private institutions entrusted with managing depositors’ money and shareholder capital. Profit is not merely a reward for executives or investors; it is the buffer that allows financial institutions to absorb losses during downturns. Risk management is not corporate selfishness; it is the foundation of financial stability.
Expanding inclusive finance within reasonable limits is both possible and desirable. Yet forcing banks to loosen lending standards in the name of social policy risks undermining the very safeguards that protect the financial system. Encouraging loans without adequate regard for repayment ability increases the likelihood of moral hazard, weakens balance sheets and raises the probability of future defaults.
History offers repeated reminders of how quickly such risks can spread beyond the banking sector itself. When bad loans accumulate, the costs rarely remain confined to lenders. Higher funding costs are eventually passed on to responsible borrowers through increased interest rates, reduced credit availability or deteriorating services. If the damage escalates into a broader financial crisis, the burden ultimately falls on society as a whole.
South Korea experienced this reality painfully during the Asian financial crisis, when public funds were poured into stabilizing failed institutions and ordinary citizens bore the economic consequences.
None of this absolves the banking industry of criticism. South Korean banks have long relied heavily on collateral-based lending while concentrating excessively on high-credit customers and neglecting vulnerable borrowers. Those structural weaknesses deserve scrutiny and reform.
But the answer is not politically directed lending or pressure campaigns against profitability. A healthier path would involve improving credit evaluation systems, developing more sophisticated risk models and strengthening the efficiency of policy finance programs designed specifically to support underserved groups.
Inclusive finance should be encouraged through incentives and market-based mechanisms — not through policies that risk weakening the foundations of the financial system itself.
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