[Loan Regulation Conflict] "Global Upward Trend" vs "Speed Too Fast Is the Problem"

Comparison of Claims by Financial Services Commission and Bank of Korea

Reference Interest Rates Expected to Rise from Second Half Amid Global Economic Uncertainty
Preferential Rates Reduced Due to Regulatory Tightening... Top 5 Banks Cut by 0.08%P

[Asia Economy Reporter Kwangho Lee] "The increase in benchmark interest rates due to international economic instability played a major role." (Financial Services Commission)

"The reduction in preferential interest rates and the rise in additional interest rates, resulting from strengthened government regulations to curb unsecured loans, were the main causes." (Bank of Korea)

These are the views presented by the Financial Services Commission, Financial Supervisory Service, and Bank of Korea, the domestic financial and economic policy control towers, regarding the sharp rise in loan interest rates. The financial authorities argue that the rise is due to the global trend of increasing benchmark interest rates, not regulatory effects. The Bank of Korea sees the household debt regulations implemented since the end of last year as the biggest factor driving up loan interest rates.

On the 19th, Asia Economy analyzed the claims of the two institutions for fact-checking and found that the rise in benchmark interest rates such as government bonds and bank bonds, pointed out by the financial authorities, began in the second half of this year. Loan interest rates are calculated by adding benchmark interest rates and additional interest rates and subtracting preferential interest rates. Benchmark interest rates have been rising sharply since the second half of the year due to global synchronized tightening and concerns over benchmark rate hikes.

According to the Korea Federation of Banks and the Korea Financial Investment Association, the COFIX rate, the benchmark interest rate for variable-rate mortgage loans, and the 1-year bank bond rate, the benchmark for unsecured loans, were 0.92% and 1.24% respectively in June. By October, they rose to 1.29% and 1.74%, increasing by 0.37 percentage points and 0.5 percentage points respectively. The 3-year bank bond rate, the benchmark for mixed-type mortgage loans, rose from 1.62% to 2.33%, an increase of 0.71 percentage points during the same period.

The financial authorities viewed the interest income banks earned this year as resulting from the surge in household loans rather than from the rise in loan interest rates. In fact, the Financial Supervisory Service recently announced that the average household loan balance of 19 domestic banks in the third quarter of this year was 1,052.7 trillion won, an increase of 94.8 trillion won compared to 957.9 trillion won in the same period last year. During the same period, interest income was 11.6 trillion won, up 1.2 trillion won from 10.4 trillion won the previous year, and net interest margin increased by 40 billion won to 1.44 trillion won from 1.4 trillion won in the same period last year.

On the other hand, the Bank of Korea diagnosed that loan interest rates rose as preferential interest rates disappeared due to strengthened regulations. The rise in loan interest rates is mainly attributed to the increase in long-term market interest rates, which raise the benchmark rates used to calculate loan interest rates, and the rise in additional interest rates.

The average mortgage loan interest rates of the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?rose from 2.75% at the end of June to 3.42% last month, an increase of 0.68 percentage points over four months. During the same period, benchmark interest rates rose by 0.64 percentage points, and banks’ preferential interest rates were reduced by 0.08 percentage points.

The financial authorities also stated that additional interest rates and preferential interest rates have been adjusted unfavorably for borrowers due to banks’ own strengthened household loan management. However, banks have no choice but to manage loans by expanding additional interest rates or reducing preferential interest rates to comply with the financial authorities’ total volume restrictions.

Earlier, Woori Bank significantly reduced the preferential interest rate conditions for 11 types of unsecured loans and lowered the maximum preferential interest rate limit for apartment mortgage loans from 0.50 percentage points to 0.30 percentage points. The 0.30 percentage point preferential interest rate items for residential officetel mortgage loans and fixed monthly repayment loans (Woori Apartment Loan) were also deleted. NH Nonghyup Bank also removed preferential items that provided up to 0.3 percentage points interest benefits based on transaction performance.

A financial industry official said, "It is true, as the financial authorities claim, that benchmark interest rates such as government bonds and bank bonds have risen, but since this rise is a result of government fiscal expansion such as disaster relief funds, the financial authorities cannot avoid responsibility."

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