Last Year, Average Credit Loan Interest Rate at Savings Banks Was 17%... Proportion of High-Interest Loans Decreases

Average Interest Rate on Savings Bank Personal Loans Drops 1.0%P to 17.0% YoY
Financial Authorities Say "Still High"
High-Interest Loan Proportion Decreases with Average Rate Decline

[Asia Economy Reporter Kwangho Lee] Last year, the average interest rate on credit loans at savings banks reached 17.0%. Although the rate has been gradually decreasing due to the reduction of the legal maximum interest rate and regulatory guidance, the financial authorities explain that it remains high. However, with the legal maximum interest rate set to be lowered from 24% to 20% starting this July, the proportion of high-interest loans has significantly decreased.

According to the Financial Supervisory Service on the 16th, as of the end of last year, the average interest rate on new household credit loans at a total of 79 savings banks was recorded at 17.0% per annum. This is a decrease of 1.0 percentage point compared to the previous year.

The average interest rate on new household credit loans has been steadily declining from 19.3% at the end of 2018. On a balance basis, it also fell by 1.7 percentage points year-on-year to 17.7%.

However, the financial authorities still consider the credit loan interest rates at savings banks to be high. A Financial Supervisory Service official stated, "The interest rates on household credit loans at savings banks have been declining due to the reduction of the legal maximum interest rate (from 27.9% in February 2018 to 24%), regulatory efforts to rationalize loan interest rates, and a low-interest-rate environment. Nevertheless, the average interest rate on new loans still reaches 17%, which is high and is expected to cause economic difficulties for ordinary citizens."

Last year, the balance of household credit loans at savings banks amounted to 20.2199 trillion KRW. Among these, the balance of high-interest loans with rates of 20% or higher was 5.5 trillion KRW, accounting for 27.2%. The proportion of high-interest loans has also significantly decreased from 56.9% in 2018 and 42.5% in 2019 to 27.2% last year. The proportion based on new loans in December last year was 18.6%.

The proportion of high-interest loans is decreasing to 27%... Authorities to prepare supplementary measures

The financial authorities plan to prepare supplementary measures to ensure that low-credit borrowers are not excluded from the loan market following the reduction of the legal maximum interest rate.

When the legal maximum interest rate is lowered to 20% in the second half of the year, loans made at savings banks since November 2018 (including renewals and extensions) will have their interest rates reduced to the maximum rate within one month.

Although the regulation to reduce the legal maximum interest rate does not originally apply retroactively to existing loans, savings banks revised the standard loan transaction terms and conditions in November 2018 to provide the benefit of the maximum interest rate reduction to existing borrowers as well.

As a result, it is expected that borrowers' interest burdens will decrease, but in the long term, there are concerns that savings banks may refuse contract renewals or deny new loans to low-credit borrowers when the loan period expires.

The financial authorities plan to expand the supply of policy financial products for low-income citizens and provide incentives such as preferential loan-to-deposit ratios to excellent financial companies offering mid-interest loans to prevent a contraction in loan supply to low-credit borrowers.

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