By Kim Tae-gyu
The Lotte Group, South Korea’s fifth-largest conglomerate, has come under fire due to dubious practices involving its micro-credit business and financial services unit Lotte Capital.
The Seoul-based group runs a microcredit bank in central Seoul, where people with relatively low credit ratings can borrow between 5 million and 50 million won with low annual interest rates of less than 4.5 percent.
A total of 33 people whose credit ratings are seven to 10 _ the worst ratings on the scale _ have successfully borrowed 340 million won from the micro bank thus far.
By contrast, Lotte Capital has raked in profits through levying interest rates of up to 40 percent per annum for mostly those who fail to borrow money from banks due to low credit rates.
This prompts some critics to half-jokingly recommend customers of Lotte Capital to resort to the microcredit bank of the group in order to pay the ultra high interest rates of the former.
``The main customers of Lotte Capital overlap with those of its microcredit bank. Many question why the interest rates are that different,’’ a Seoul analyst said while asking not to be named.
``It sounds eccentric that a conglomerate would earn big profits by charging high interest rates at its financial arm while extending credit with extremely beneficial rates at another unit.’’
Things are similar at the Hyundai-Kia Automotive Group as the country’s runner-up chaebol also operates its own microcredit bank and financial unit, Hyundai Capital, a joint venture with GE Capital.
The group operates four microcredit banks in Seoul, Ulsan and Gwangju, which offer favorable credit terms with the same interest rates as those of Lotte Group, at lower than 4.5 percent a year.
It also has a subsidiary of Hyundai Capital, which has imposed annual rates of as high as 40 percent.
The practices even angered President Lee Myung-bak, who rebuked the exorbitantly high interest rates of some capital companies affiliated with large corporations late last month.
The responses were instant as both Hyundai Capital and Lotte Capital cut down their ceiling on annual interest rates by 5 percentage points to 35 percent while doing away with commissions.
Yet, people are in uproar that the rates are still sky-high, comparable even to those of loan sharks.
When contacted, the groups said that they levy appropriate amount of interests.
``Considering funding costs and high risks that the unsecured loans may not perform, we do not think that our interest rates are overly high,’’ said a Lotte Capital representative.
``Those with good credit ratings borrow money from us with single-digit interest rates. What we want to make clear is that the rates are determined in line with market principles.’’