Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Reporter's Notebook Authorities should not sit on hands while loan-deposit rate widens
Financial Services Commission Chairman Koh Seung-beom speaks during a National Assembly general meeting in Seoul, Nov. 10. Joint Press Corps-Yonhap
By Lee Min-hyung
By Lee Min-hyung
Korea's financial authorities should keep tabs on banks to ensure that they are considering increasing the interest paid to customers for their deposits, rather than letting the lenders fatten their pockets at the expense of ordinary citizens by jacking up loan interest rates.
According to data from the Bank of Korea (BOK), commercial lenders are moving to raise their loan interest rates at an alarming pace. As of June, the interest gap between banks' household loans and deposit savings products widened to 2.02 percentage points for the first time since 2017.
There are growing concerns that the gap will expand further over the next few months as the central bank is set to raise the benchmark rate at least a couple of more times. The BOK sent repeated signals at the end of this month of an impending rate hike.
But what is even more troubling is the pro-bank attitude of the financial watchdogs.
“Given the possibility of an additional rate hike (from the BOK), the loan-to-deposit margin will be on the rise and such an era will last,” Financial Services Commission Chairman Koh Seung-beom said early this month.
After the hawkish bureaucrat took office in August, the watchdog has held tight control of rising household debt by pressing banks to reduce their loans to households.
His recent remark can also be interpreted as a warning to households not rush to take out more loans, as they have done so for the past few years amid ultra-low interest rates.
The central bank is likely to increase the key rate to 1 percent Nov. 25. This will push more people to bear increased interest costs.
Banks also do not have any reasons to maintain the status quo, as authorities exude little regulatory pressure on them.
Financial Supervisory Services Governor Jeong Eun-bo also shared his stance respecting the market logic.
“Banks' interest rates are determined by the market, and our view is that we should respect decisions by the market,” Jeong said. “But we will keep monitoring it, as part of our supervisory efforts.”
It remains to be seen when exactly the central bank will also push for the key rate hike next year. A widespread view is that the BOK will increase it to around 1.5 percent by the end of 2022.
That will compound financial burdens particularly on people in their 20s and 30s who fueled a debt binge, using the borrowed money to invest in stocks and real estate.
“For now, it is de facto impossible to slow down the pace of the rising loan-to-deposit margin, so households are advised to brace for increased financial costs amid a normalization of the post-pandemic economy,” an industry source said.