Savings Banks with Loan Interest Rates Dropping to 16% Range... Consumers Say "Still High" (Comprehensive)

Last Month's Household Credit Loan Interest Rate at 16.52%
Clear Downward Trend After Legal Maximum Interest Rate Reduction
More Room for Decrease Following Bank of Korea's 'Big Cut'

[Asia Economy Reporter Kim Min-young] The personal credit loan interest rates at major savings banks have dropped to the mid-16% range annually. Although the practice of lending at high interest rates above 20% regardless of credit rating is being phased out, concerns remain that the still high rates are placing a burden on household finances.

According to the Korea Federation of Savings Banks on the 4th, the average interest rate of 15 savings banks that newly issued household credit loans exceeding 10 billion KRW last month was recorded at 16.52% per annum. This marks a decrease of 5.05 percentage points from 21.67% at the end of 2017 over three years and four months.

Since the statutory maximum interest rate was lowered from 27.9% to 24% in February 2018, personal credit loan interest rates have been on a continuous downward trend. The average loan interest rate was 18.53% in December 2018 and 17.46% in December last year.

This is analyzed as the result of the savings bank industry’s strenuous efforts to shed its image as a symbol of high interest rates. An industry insider said, “By improving our proprietary Credit Scoring System (CSS), we have been able to set customized interest rates for individual borrowers,” adding, “We offer lower rates to high-credit borrowers and mid-range rates to medium- and low-credit borrowers.”

Following recommendations from financial authorities, the industry has expanded the launch of mid-interest loan products since 2016. According to the Federation, currently 27 companies offer 72 mid-interest products.

According to financial authorities, mid-interest products refer to unsecured credit loans with a weighted average interest rate of 16.5%, a maximum interest rate below 20%, and supplying more than 70% of loans to borrowers with credit ratings of grade 4 or lower.

Considering that the interest rate of the government-guaranteed product, Hae-sal-loan17, supplied to borrowers with credit ratings between grades 6 and 10, is 17.9%, the average interest rate of savings bank credit loans is lower than that of government-guaranteed products.

Savings banks affiliated with financial holding companies such as Shinhan, KB, and Hana have led the interest rate reductions. Among these, KB Savings Bank’s credit loan rate is the lowest at 12.38%, followed by Hana at 13.35%, and Shinhan at 15.91%.

These rates are significantly lower than the industry average. These banks mainly engage in linked operations by taking over borrowers who were rejected by commercial banks within the same financial group but have good credit ratings and credit evaluation scores. This allows them to attract relatively high-quality customers.

OK Savings Bank and Welcome Savings Bank, which have taken on loan receivables from affiliated lending companies and thus inevitably have relatively high interest rates, recorded average rates of 19% and 18.38%, respectively. The parent companies of these savings banks are acquiring the savings banks on the condition that they exit the lending business by 2024, transferring most of their lending assets to the savings banks.

Going forward, there are opinions that more sophisticated CSS development and the launch of customized products utilizing big data and other customer information are needed to further lower loan interest rates. A financial authority official said, “From the perspective of general consumers, savings bank loan interest rates are still high,” adding, “With the base interest rate cut, funding costs have decreased, so interest rates are expected to fall a bit more.” A financial sector official said, “With interest rates lowered to the mid-10% range, competitiveness has increased, so efforts such as developing customized products for low-credit borrowers are necessary.”

This content was produced with the assistance of AI translation services.