Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
'Yoon's commercial bank rate policy contradicts his market-driven economic vision'
President-elect Yoon Suk-yeol takes a break for lunch from his office in central Seoul, Wednesday. Yonhap
By Yi Whan-woo
By Yi Whan-woo
President-elect Yoon Suk-yeol is anticipated to employ a policy intended to tackle a widening gap between commercial banks' rates for loans and deposits amid criticism over lenders' soaring interest income and record earnings in contrast to the snowballing debt of borrowers.
Yoon's policy, however, is drawing concern that it contradicts his broader market-driven economic vision.
Banking industry insiders note such a policy needs the intervention of government instead of allowing the involved private parties to self-manage.
“Any government intervention in the decision-making process of commercial banks' interest rates will be in violation of market autonomy,” a bank staffer said on condition of anonymity.
The staffer referred to Yoon's promise to introduce new guidelines aimed at curbing the “excessive” income of financial services companies and reducing the financial burden to consumers by being transparent to the public about how banks determine their rates.
A signboard directs customers to a personal loan service section at a commercial bank in Seoul, in this photo taken in January. Korea Times file
Among possible measures is the disclosure of details on the Cost of Funds Index (COFIX). Operated by the Korea Federation of Banks (KEB), COFIX is a benchmark for lending rates based on costs-of-funding information provided by nine commercial banks.
This includes the so-called big four ― KB Kookmin, Shinhan, Hana and Woori ― each having posted record earnings in 2021 under their respective parent banking group.
The four groups reaped 34.7 trillion won ($28 billion) combined in interest income in 2021, up 14 percent from the previous year.
The difference between rates for loans and deposits concerning new transactions increased from 1.55 percentage points in December to 1.80 percentage points in January, according to the Bank of Korea (BOK).
The 0.25 month-on-month gap is the highest since January 2021 when the rate was at 0.26 percentage points.
Specifically, the average lending rate inched up 0.2 percentage points month-on-month to 3.45 percent, while the average deposit rate lost 0.05 percentage points month-on-month to 1.65 percent.
It is speculated that the gap between lending and deposit rates will grow, considering the BOK, which raised benchmark interest rates three times between August 2021 and January, is geared toward additional hikes so as to fight surging inflation.
“The new guidelines can hopefully help consumers figure out which banks take too much profit from the interest on loan repayments and which ones are reasonably set lending rates,” an official at the financial regulator said.
Citizens' Coalition for Economic Justice, an advocate group for financial consumers, commented on solving the problem of “…raising the lending rate at the speed of light while raising the deposit rates in dribs and drabs.”
Asking not be named, a bank staffer, however, said that despite the problem, “asking the lenders to disclose every detail means turning a blind eye to the market economy.”
“The banks are under regulatory pressure whenever there are elections, and this should be the real problem that needs to be resolved,” he said.
An employee from a different bank said, “The industry as a whole is transparent when it comes to disclosing details on profits.”
“Under the circumstance, it is appropriate for a financial service provider to decide the interest rates independently after considering the market situation, not under the influence of the government.”