[Loan Regulation Conflict] Expert: "Excessive Total Volume Regulation Is the Direct Cause... Financial Services Commission Bears Greater Responsibility"

Controversy Over Rising Loan Interest Rates... Asia Economy Conducts Urgent Expert Survey

[Asia Economy Reporter Jin-ho Kim] Economic and financial experts commonly pointed to the financial authorities' 'excessive' total volume regulation measures as the cause of the sharp rise in loan interest rates. While the increase in the benchmark interest rate, which serves as the basis for calculating loan interest rates, may be a factor, the more fundamental cause lies in the Financial Services Commission's excessive regulation.

On the 19th, Asia Economy conducted an urgent expert survey on the causes of the rise in loan interest rates. Professor Jeon Seong-in of the Department of Economics at Hongik University diagnosed, "The direct cause is the total volume regulation on loans," adding, "The essence of the problem is the suddenly tightened total volume regulation applied comprehensively, despite the fact that the deadline given until the end of the year is not significant." He said the Financial Services Commission's explanation attributing the cause to the increase in the benchmark interest rate is unreasonable.

Professor Jeon added, "It is necessary to consider the increase in interest rates for those pushed into the secondary financial sector due to the total volume regulation, and the rationale presented by the Financial Services Commission is just the tip of the iceberg."

Professor Seo Ji-yong of the Department of Business Administration at Sangmyung University also pointed out that the financial authorities bear greater responsibility. Professor Seo said, "The Financial Services Commission's claim that market interest rates rose and loan interest rates followed is correct, but the current speed of increase is unusually fast," and "The more fundamental cause is that the total loan volume regulation created a market led by supplying banks."

He explained, "The basis for the market changing from consumer-led to bank-led due to total volume regulation is the interest rate spread, which has recently increased significantly," adding, "This change can also be detected by looking at the third-quarter performance of major banks."

There was also a pointed critique of the Financial Services Commission's explanation released the previous day. Professor Seo said, "The Financial Services Commission's explanation that loan interest rates rose because the benchmark interest rate increased is too textbook-like," and "It would be a more honest explanation to say that the total volume regulation was implemented to minimize household debt defaults, and as a result, loan interest rates inevitably surged."

There were also claims that the sharp rise in loan interest rates ultimately harms only ordinary citizens and that active intervention by financial authorities is necessary.

Professor Sung Tae-yoon of the Department of Economics at Yonsei University explained, "Basically, the currently implemented total volume regulation is affecting the increase in the additional interest rate," adding, "Since the total loan volume that financial companies can provide is fixed, interest rates have risen." Professor Seo said, "I don't understand why they cannot send a signal to set an upper limit on loan interest rates and maintain it to some extent until this year," and criticized, "They frequently call banks to demand funds or impose regulations, but they are passive in these areas, which is hard to understand."

However, there was also an opinion that the Bank of Korea was at fault for missing the right timing to raise the base interest rate. Professor Jeon said, "The criticism of excessive liquidity has been raised since the beginning of the year, but raising the base interest rate in August instead of July is seen as missing the timing," and analyzed, "The subsequent overlap with the Financial Services Commission's total volume regulation likely further fueled the surge in loan interest rates."

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