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| A signboard directs customers to the personal loan and small business loan services sections of a commercial bank in Seoul in this file photo. Korea Times file |
By Yi Whan-woo
Commercial banks have been facing increased customer complaints, as they lower their rates for deposits while keeping rates for loans high, citing pressure from financial authorities.
But widening the deposit-loan interest gap results in huge interest margins for lenders, many of whom are struggling with repayments in the midst of the steep rate hikes delivered by the central bank for more than a year.
Major banks have recently been raising their deposit rates past 5 percent per year, which has been welcomed by consumers, as those who could afford to save money made profits from their deposits.
Under the circumstances, the lenders were pressured by the Financial Services Commission (FSC) to drop their deposit rates as the excessive cash inflow was feared to cause a liquidity shortage among non-banking firms, as witnessed in fall 2022.
At that time, many non-banking financial firms struggled to raise money by issuing bonds, because their coupon rates were lower than banks' deposit rates, pushing investors to prefer depositing their money in banks.
As of Tuesday, five major banks ― KB Kookmin, Shinhan, Hana, Woori and NH NongHyup ― offered deposit rates in the range of 3.98 percent to 4.27 percent for deposit accounts with a maturity period of one year.
Meanwhile, the rates for home loans, which account for most of the long-term household debt, rose above 8 percent.
"The gap between rates for loans and deposits is something that should be diminished urgently because it only benefits lenders amid an elevated cost of living for ordinary people due to inflation," said the Citizens' Coalition for Economic Justice, a Seoul-based activist group.
Data released by Hanwha Investment & Securities, Jan. 6, showed that four major banking groups ― KB, Shinhan, Hana and Woori ― plus the Industrial Bank of Korea (IBK) were estimated to have reaped 80.97 trillion won in interest income last year. The figure is up by 36.3 percent or 21.59 trillion won from 2021.
Against this backdrop, multiple banks on Thursday announced plans to decrease their interest rates for loans.
NH NongHyup Bank plans to drop the rate by 0.8 percentage points on Jan. 20. It will bring down its home loan rates to the range of 5.12 percent to 6.22 percent annually.
KB Kookmin Bank will drop its rate by up to 0.75 percentage points while Hana Bank will decrease it by up to 0.5 percentage points.
In addition to the widening deposit-loan interest gap, consumers have been dissatisfied with banks' operating hours, which are currently an hour shorter compared with what they were before the pandemic started. The lenders have been facing calls to restore operating hours to what they were before now that almost all social distancing measures have been lifted.
KB Kookmin Bank in particular is facing a backlash for its trial plan to suspend operations during lunch break at some less-visited branches. As the targeted branches will run only five hours a day, the plan is feared to make it tough for clients to drop in.
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