Banks mull lowering loan interest rates amid gov't pressure

A pedestrian walks by a promotional banner hung outside of a local commercial bank in Seoul, Thursday. Yonhap

Concerns grow over attempts to interfere in financial markets

By Anna J. Park

Local commercial banks have started to lower their loan interest rates, as financial authorities have recently been voicing clear criticisms that the banks exploit the financially vulnerable by imposing high interest rates.

Earlier this week, both President Yoon Suk-yeol and the Financial Supervisory Service (FSS) Governor Lee Bok-hyun urged local banks to cooperate with the financial authorities in reducing the interest rate burden on financial consumers.

"In a period of rising interest rates, financial institutions and the financial authorities need to cooperate together to reduce financial consumers' excessive burden from interest rates," President Yoon said on Monday, urging his key aides to devise measures to decrease the interest payments of financially vulnerable people.

On the same day, FSS Governor Lee also sent a similar message to local bank heads. He said although interest rates are decided voluntarily in the market, the difference between deposit and loan interest rates tends to increase during the period of rising interest rates, adding to criticisms of banks' excessive profit-taking.

Following the series of warning messages, NH NongHyup Bank planned to lower its loan interest rates on Friday. It decided to lower the jeonse loan interest rates by 0.1 percentage point. The bank is also looking into lowering its mortgage interest rates as well. KB Kookmin Bank and Woori Bank are also considering to offer slightly discounted interest rates for their mortgage loans and jeonse loans.

As it is difficult to adjust the lenders' basis interest rates, the reduction comes by adjusting the banks' voluntarily set prime rates. Still, industry insiders point out that the government's attempt to curb the banks' interest rate hikes would be limited, because the core reason behind their rising interest rates lies in the global macroeconomic conditions, rather than their seeking to maximize their profits from interest payments.

"The rise of loan interest rates is somewhat unavoidable in this global macroeconomic situation, when the interest rates of treasury bonds and bank bonds are all rising globally," a market insider said.

Other industry insiders said the government's intrusive moves to control the banking sector could affect the lenders' profits and future stock prices, as the compulsory reduction of loan interest rates would eat into the banks' net interest margin (NIM).

Regarding such complaints, the FSS chief said Thursday he neither was willing to interfere in the market's voluntary mechanism of adjusting interest rates nor has the power to do so.

According to the Korea Federation of Banks, the average interest rate of 16 commercial banks' mortgage loans with maturity period of over 10 years stood at 4.08 percent this month, which is up 1.28 percentage points from last June's 2.8 percent average.

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