Banks consider lowering loan interest rates under government pressure

Korea time


Banks consider lowering loan interest rates under government pressure

A pedestrian walks past a promotional banner hanging outside a local commercial bank in Seoul on Thursday.  Yonhap
A pedestrian walks past a promotional banner hanging outside a local commercial bank in Seoul on Thursday. Yonhap

Concerns grow over attempts to interfere in financial markets

By Anna J. Park

Local commercial banks have started lowering the interest rates on their loans, as financial authorities have recently come out loudly criticizing banks for exploiting financially vulnerable people by charging high interest rates.

Earlier this week, President Yoon Suk-yeol and Financial Supervisory Service (FSS) Governor Lee Bok-hyun urged local banks to cooperate with financial authorities to reduce the interest rate burden on banks. financial consumers.

“In times of rising interest rates, financial institutions and financial authorities should cooperate to reduce the excessive burden of interest rates on financial consumers,” Chairman Yoon said Monday, urging his top aides to design measures to reduce the interest payments of financially vulnerable people.

On the same day, FSS Governor Lee also sent a similar message to local bank officials. He said that although interest rates are decided voluntarily in the market, the difference between interest rates on deposits and loans tends to increase during the period of rising interest rates, which adds criticism of excessive profit taking by banks.

Following the series of warning messages, NH NongHyup Bank planned to cut interest rates on loans on Friday. It decided to lower jeonse loan interest rates by 0.1 percentage points. The bank is also considering lowering its mortgage interest rates. KB Kookmin Bank and Woori Bank are also planning to offer slightly reduced interest rates for their mortgages and jeonse loans.

Since it is difficult to adjust lenders’ base interest rates, the reduction comes by adjusting the prime rates voluntarily set by banks. Still, industry insiders point out that the government’s attempt to rein in banks’ interest rate hikes would be limited, as the main reason for their interest rate hikes lies in global macroeconomic conditions, rather than their quest to maximize their profits from interest payments.

“Rising interest rates on loans are somewhat inevitable in this global macro situation, as interest rates on Treasury bills and bank bonds all rise globally,” an insider said. market.

Other industry insiders said the government’s intrusive moves to control the banking sector could affect lenders’ profits and future share prices as the mandatory cut in interest rates on loans would eat into the interest margin. net (NIM) of banks.

Regarding these complaints, the head of the FSS said on Thursday that he was neither willing to interfere in the market’s voluntary mechanism for adjusting interest rates nor had the power to do so.

According to the Korea Federation of Banks, the average interest rate on mortgages of 16 commercial banks with a maturity of more than 10 years stood at 4.08% this month, up from 1.28%. percentage point from last June’s average of 2.8%.

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