Securities Firms' 'Kkamkkami' Loan Interest Rates Restricted... Monthly Reassessment of Base and Additional Rates

[Asia Economy Reporter Eunmo Koo] The loan interest rate calculation system of securities firms, which has been criticized for its lack of transparency, will be restructured. From now on, the loan interest rate applied when investors borrow purchase funds from securities firms will reflect the monthly calculated base interest rate and additional interest rate.

The Financial Services Commission, the Financial Supervisory Service, and the Korea Financial Investment Association announced on the 4th that they have prepared improvement measures for securities firms to reasonably calculate loan interest rates and disclose them transparently.

Previously, the loan interest rate was calculated by adding the funding cost, additional interest rate, and adjustment interest rate. Now, the funding cost, which securities firms have calculated independently, will be replaced with the base interest rate. The base interest rate refers to market interest rates such as Commercial Paper (CP), Repurchase Agreements (RP), or benchmark rates like KORIBOR (Korea Interbank Offered Rate). Securities firms must calculate the base interest rate monthly and reflect it in the loan interest rate. The additional interest rate will reflect monthly recalculated figures based on components such as capital costs, operational costs, and target profit margins.

A Financial Services Commission official explained, "Securities firms operate their own funding cost calculation methods according to the model guidelines but do not disclose the calculation methods. Most securities firms recalculate loan interest rates irregularly once or twice a year, so changes in market interest rates are not reflected in a timely manner." In fact, although the Bank of Korea's base interest rate was lowered three times since October last year, most securities firms adjusted their loan interest rates only once or not at all.

Provision and disclosure of loan interest rate information will also be strengthened. Securities firms must provide borrowers with loan explanation documents that separately indicate the loan base interest rate and additional interest rate. Securities firms must also report the results of loan interest rate recalculations to the Korea Financial Investment Association monthly. Securities-backed loans, which function similarly to margin trading loans, will also be subject to the establishment of loan interest rate calculation methods, periodic recalculations, and detailed notification and disclosure.

The new loan interest rate calculation and disclosure method will be applied from next month after revising the Korea Financial Investment Association's model guidelines for loan interest rate calculation this month.

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