Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
Banks at loss over regulator's demands contradictory to upcoming key rate hike
Financial Supervisory Service Governor Lee Bok-hyun, second from right, speaks at the meeting held at Shinhan Bank's headquarters in Seoul, Friday. Newsis
By Lee Yeon-woo
Shinhan Bank announces interest rate cut for loans
By Lee Yeon-woo
While banks are announcing plans to lower interest rates on loans one by one following visits by the top financial regulator, concerns are being raised that the “pressure” on the banks to lower interest rates contradicts the recent key interest rate hikes and possibly more rises in the future.
Since last month, the Financial Supervisory Service (FSS) Governor Lee Bok-hyun has been making visits to commercial banks, urging them to lower current loan interests and “share the pain felt by the public.”
His latest visit was to Shinhan Bank in Seoul, Friday. “I'm grateful that banks are announcing a series of voluntary plans for mutual growth. I hope the industry could continue these efforts,” Lee said at the visit.
Following Lee's visit, Shinhan Bank announced plans to lower interest rates on several loan products, including housing mortgages, lease loans and personal loans. The bank estimates that customers can save up to 100 billion won ($ 77 million) in interest costs through this plan. Additionally, the bank plans to establish a separate division for creating social value.
This is not the first time that commercial banks announced such support measures following Lee's visits. Hana Bank, BNK Busan Bank and KB Kookmin Bank all lowered interest rates on several loan products following Lee's visits on Feb. 23, March 8 and March 9, respectively.
From left, Financial Supervisory Service (FSS) Deputy Governor Kim Young-ju, FSS Governor Lee Bok-hyun, and Shinhan Bank CEO Jung Sang-hyuk, listen to a presentation at the bank's headquarters in Seoul, Friday. Newsis
However, some market watchers are concerned that the regulator's push for lower interest rates is at odds with the Bank of Korea's (BOK) ongoing key rate hike to combat inflation.
“There can be a policy for the group which needs policy support, such as the self-employed. Asking for intensive interest rate reductions does not align with the overall monetary policy and policy goals,” said Jeong Se-eun, an economist professor at Chungnam National University.
Jeong also questioned whether it is appropriate for the FSS to play a role in adjusting interest rates, as its main role should be investigating and inspecting financial institutions.
The banking industry also expressed discontent.
“Banks of course cannot ignore the direction of FSS. Banks have to show that they are responding well to the financial authorities' requests. I think most bank insiders consider the FSS direction as the No. 1 consideration when making future decisions,” an official from a commercial bank who asked for anonymity said.
Lee disagreed with these concerns. Following his visits to KB Kookmin Bank on March 9, he commented that he does not see any issues with monetary policy at the moment and believes that individual banks have room for adjustment and to share the burden that customers are experiencing.
“When the key interest rate is raised, both deposits and loan interests increase. However, indeed, banks have significantly raised loan rates more than deposit rates. It's not about designating certain banks to lower specific interest rates. Therefore, I believe it's appropriate for financial authorities to address this issue,” said Sung Tae-yoon, an economist professor at Yonsei University.
Lee's next destination is known to be DGB Daegu Bank.