Households Pay Higher Interest Than Small Firms
By Kim Jae-won
Staff Reporter
Households paid higher interest than small- and medium-sized enterprises (SMEs) last year as banks cut interest for the SMEs, while imposing excessive spreads on households, the central bank said Monday.
According to the Bank of Korea (BOK), the interest rate paid by households for their loans was 5.73 percent on average in 2009, 1.46 percentage points less than the previous year as the key interest has been kept at 2 percent since February 2009, the lowest ever.
For SMEs, the interest rate dropped even more. The comparable rate for SMEs was 5.65 percent in 2009, 1.66 percentage points lower than in 2008.
The lending interest rate for households surpassed that for SMEs for the first time in six years since 2003. Usually, banks impose a lower interest rate on households than SMEs as they provide their homes as collateral and are less likely to go bankrupt than SMEs.
Analysts said that the government’s policy of supporting SMEs has come to reverse the interest trend.
Banks turned their eyes to households to compensate the margins they lost with the SMEs.
Banks were criticized last year for raising the spread while the certificate of deposit (CD) rate started to fall. Nevertheless, they continued relying on the spread to make up for the falling interest.
Meanwhile, the interest gap between SMEs and big conglomerates narrowed.