Banks face growing pressure to lower lending rates amid record profits

An advertisement reads, “Personal credit loans, mid-range interest rate loans for employees offered at interest rates of 4.58 to 9.78 percent annually,” at a commercial bank in Seoul, Tuesday. Yonhap

By Yi Whan-woo

Major banking groups are believed to have set a new high in their quarterly earnings in the April-June period.

However, the groups are finding such record profits an unwelcome boon as they can be a reason for the government to increase pressure on them to lower their lending rates to help borrowers who are struggling with repayments, according to industry sources, Tuesday.

The nation's banking groups ― KB, Shinhan, Hana and Woori ― are scheduled to announce their respective net incomes for the second quarter beginning next week.

The net incomes combined are estimated to be more than 9 trillion won ($6.85 billion), which is higher than the current record of 4.63 trillion won set in the January-March period.

At that time, KB earned 1.45 trillion won, Shinhan 1.4 trillion won, Hana 902.2 billion won and Woori 884.2 billion won.

“An estimated net income worth 9 trillion won is possible and we're bracing for a toughened stance from the government which might take measures to lower lending rates,” a public relations representative of a banking group said on condition of anonymity.

Korea's benchmark interest rate has been hiked five times since August 2021, pushing it up from near-zero to 1.75 percent. Such aggressive hikes have boosted banking groups' earnings, mainly from interest income, and the government has been calling on them to narrow the gap in their rates for loans and deposits.

For instance, new Financial Services Commission (FSC) Chairman Kim Joo-hyun was the latest in a number of officials to criticize the lenders for reaping too much in profits in sharp contrast to the economic hardship of people in general amid soaring inflation.

“It would be tricky to judge whether the banking industry's interest income is excessive, but it would not be against public understanding to raise a question about whether the banks and other relevant financial companies are making money off of financially troubled customers,” Kim said during the press conference after his inauguration, Monday.

Another public relations representative of a banking group, who also asked not to be named, said the financial services companies are “paying close attention to” the government's directives concerning lending rates.

“And the banks' recent measures to ease the burden of repayments appear to be carefully orchestrated to appease public sentiment in the lead-up to the announcement about new quarterly earnings,” he said.

On Tuesday, KB Kookmin Bank announced it will temporarily reduce rates on housing loans by 0.45 percentage points or 0.55 percentage points.

The rates will vary depending on whether the borrowers took out loans by offering their home as collateral or by renting another person's home via “jeonse,” a lump sum rental contract system unique to Korea.

Shinhan Bank decided to lower the cap on its housing loan interest rate to 5 percent for the next 12 months for borrowers who had paid interest at an annual rate of 5 percent or higher through June.