Woori Bank playing 'chicken game' with interest rates

From left are Woori Bank CEO Kwon Kwang-seok, KakaoBank CEO Yun Ho-young and Toss Bank CEO Hong Min-taek. Yonhap

By Lee Min-hyung

Woori Bank's plan to cut interest rates on its loan products may create a domino effect across the banking industry next year, as other lenders are expected to follow suit to retain customers amid soaring demand for household loans.

With the arrival of the New Year, commercial banks can resume marketing loan products to households after they failed to do so due to the so-called “6 percent lending quota rule.” The newly introduced regulation blocked banks from increasing their annual quotas on household lending by more than 6 percent in 2021 from the previous year.

But as the quota will be reset at the start of 2022, banks are rushing to grab the attention of customers by promoting their plans to resume lending.

Woori Bank was the first to do so, with the lender scheduled to increase its prime rate by a maximum 0.6 percentage points on its major non-collateralized and mortgage loan products starting on Jan. 3. Those who take advantage of the benefit can take out loans at lowered interest rates.

Other commercial banks have yet to confirm their specific plans on how much they are willing to cut their interest rates on loans. But most major lenders are widely expected to introduce similar plans soon, hoping to maximize their loan-to-deposit margins, which are their biggest profit sources.

NongHyup Bank, which has suspended mortgage loans since August, will resume offering them next year. The lender also plans to increase the credit limit of its non-collateralized loans to 100 million won, which had been cut to a maximum of 20 million won last month amid toughening regulatory guidelines.

Standard Chartered Bank Korea also started receiving applications for mortgage loans on Dec. 20, in a preemptive move to increase its interest margin in line with the reset of the lending quota next year.

Other major lenders ― such as KB Kookmin Bank and Shinhan Bank ― are also ready to resume extending loans, but specific interest-related benefits have not been confirmed.

“Most banks will consider raising prime rates early next year, as they need to compete with one another to secure more interest margin,” an industry source said.

Internet-only banks ― such as KakaoBank and Toss Bank ― are also busy preparing to resume non-collateralized loan services next month.

KakaoBank, the leading mobile bank here, is also set to start offering mortgage loans sometime early next year.

But customers will have to endure more interest burden in the latter half of next year when major and emerging economies around the globe are scheduled to normalize their pandemic-sparked monetary easing policies.

The Bank of Korea (BOK) also plans to increase its key rate once more sometime in the first quarter of 2022, after it did so in August and November. Chances are the BOK will increase the key rate further to 1.5 percent in the latter half of next year in line with upcoming moves by the U.S. Federal Reserve which has been sending repeated signals that it will end its years-long freeze in near-zero key rates.