Banks face growing public criticism, possible curbs over high interest margins

The individual loans department at Hana Bank's headquarters in Seoul. Yonhap

By Lee Min-hyung

The political circle is stepping up its criticism of financial firms, calling the interest margins of banks' loan-to-deposit ratios an “undue profit.”

This criticism comes at a time when Korea's major financial holding firms have generated record earnings last year based on expanded interest margins, after the Bank of Korea pushed for preemptive rate hikes.

With the ever-growing burden on households with the steep incline of lending rates, politicians are moving to intervene in the market by possibly revising the relevant laws.

Last month, Rep. Song Eon-seog of the main opposition People Power Party proposed a revision to an existing bank law, so that financial firms are forced to provide specific and transparent datasets to customers over their interest margins between loans and deposits.

The move is a direct result of the steep increase of lending rates here. According to data from the nation's top five banks, their average interest margin from their loan-to-deposit ratios reached 2.36 percent as of the end of 2021, up 0.5 of a percentage point from the previous year.

The figure is expected to be on the rise further throughout this year, as the central bank will push for additional rate hikes at least a couple more times supposedly to tame inflation and reduce the financial imbalance here.

This situation is feared to pose a financial threat to households after they had engaged in mass buying sprees of apartments, stocks and crypto assets by taking out loans for the past two years, when banks offered near-zero interest rates amid the pandemic-sparked liquidity expansion.

“The public is facing growing burdens over the interest rate rise, but banks are generating massive profits through the interest margin from their loan-to-deposit ratio,” Song said. “The revision act will put the brakes on banks' moves to reap excessive interest margins.”