Financial Authorities Respond to Loan Interest Rate Controversy: "Submit Interest Rate Calculation Data" (Comprehensive)

Lee Chan-woo, Senior Deputy Director, Holds Meeting with 8 Commercial Banks... "Will Take Necessary Measures After Review"
Calls for Activation of Interest Rate Reduction Requests... "Many Shortcomings, Implement Improvement Plans Quickly"

Lee Chan-woo, Senior Deputy Governor of the Financial Supervisory Service, is speaking at a meeting with deputy heads of credit departments from major commercial banks on the afternoon of the 19th at the Korea Federation of Banks in Seoul.

[Asia Economy Reporter Kwangho Lee] As controversy over the sharp rise in loan interest rates continues, financial authorities have begun to directly investigate the actual operation of loan and deposit interest rates. They plan to review the data received from banks to identify any issues and take necessary measures.

On the 19th, Lee Chan-woo, Senior Deputy Governor of the Financial Supervisory Service (FSS), met with vice presidents in charge of loans from eight major commercial banks at the Korea Federation of Banks in Seoul. After the meeting, he told reporters, "We will receive data on how individual banks calculate loan and deposit interest rates and examine whether there are any problems, and whether the process is reasonable and transparent."

Lee explained, "We will try to consult with the banking sector as soon as possible to receive and analyze the data and take necessary actions. First, we need to receive and review the data to determine how to adjust (the rates)."

During the meeting, Lee also urged banks to independently review their interest rate calculations and check whether they comply with the voluntary regulatory standards, specifically the 'Model Guidelines on Loan Interest Rates.'

In his opening remarks at the meeting, Lee pointed out, "Loan interest rates have continued to rise due to factors such as the increase in market interest rates. Deposit interest rates also reflect the rise in market rates, but the increase is not as significant as that of loan rates." He added, "If the upward trend in market interest rates continues, the spread between loan and deposit rates may widen further."

Lee emphasized, "Interest rates are autonomously determined in the market according to supply and demand conditions, but banks' pricing decisions and operations must also be transparent and reasonable. Banks should carefully review whether the calculation and operation of loan interest rates, especially the additional and preferential rates, are faithfully conducted according to the model guidelines, and make improvements if necessary."

However, the financial authorities stressed that their principle of not directly intervening in interest rate decisions remains unchanged.

Lee stated, "The fundamental principle is that interest rates are determined by market supply and demand under any circumstances. Checking whether the basic principle of reasonable and transparent interest rate determination is properly observed and improving it if unreasonable does not violate market principles."

The FSS has also urged the activation of the right to request interest rate reductions to alleviate the burden on financial consumers during the period of rising interest rates.

Lee pointed out, "Although the right to request interest rate reductions was legislated in 2019, there are still many shortcomings in its actual operation. Insufficient information is provided when informing financial consumers about this right, and explanations for rejection reasons also seem inadequate."

He urged, "To enable more financial consumers to benefit from the right to request interest rate reductions, please promptly implement the improvement measures announced by the financial authorities."

However, it remains uncertain whether the activation of the right to request interest rate reductions, as demanded by the FSS, can quell the controversy over the sharp rise in loan interest rates. Since banks cannot be penalized for non-compliance and the system mainly focuses on existing borrowers, criticisms regarding its limitations are expected to continue.

According to the financial authorities, although the number of applications for the right to request interest rate reductions has increased significantly every year, the number of accepted cases falls short. The acceptance rate is known to be around 40% on average.

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