[Exclusive] Politics Targeting Bank 'Interest Rate Spread'... Opposition Proposes 'Cost Disclosure Law for Additional Interest Rates'

Park Jumin to Propose Banking Act and Financial Consumer Protection Act Next Week
Mandates Disclosure of Bank Markup Interest Rate Costs

[Image source=Yonhap News]

[Asia Economy Reporter Park Jun-yi] The ruling Democratic Party of Korea, which holds the majority, is set to propose a bill mandating the disclosure of the cost structure of the additional interest rate (gasan-geumri), one of the components used to calculate bank loan interest rates. As borrowers’ burdens have increased due to rising interest rates, the party aims to understand the cost structure of the additional interest rate, which banks can arbitrarily adjust. Although the disclosure of loan interest rates is currently mandatory, detailed information such as margin rates is not disclosed, so they plan to amend related laws including the Banking Act. While resistance from the banking sector is expected, the bill is likely to gain momentum as both ruling and opposition parties unanimously demand banks to reduce their ‘interest rate spread margins.’

According to the office of Assemblyman Park Joo-min on the 1st, Park will introduce the ‘Additional Interest Rate Calculation Basis Disclosure Bill’ (amendments to the Banking Act and the Financial Consumer Protection Act) next week. Park is currently a member of the Democratic Party’s Livelihood Priority Practice Group’s Price Stabilization Task Force.

The core of the bill is to require commercial banks to disclose detailed information about the base interest rate and the additional interest rate components used to determine loan interest rates, so that consumers can understand them. The components determining the additional interest rate include ‘cost items’ such as risk premium and liquidity premium, as well as the ‘target profit rate,’ which is the margin rate. Although bills requiring the disclosure of deposit and loan interest rates and their calculation methods have been submitted before by both ruling and opposition parties, this is the first bill to mandate the disclosure of detailed components.

Pressure on banks has been increasing recently. The government and ruling party have also emphasized alleviating consumers’ interest burdens. President Yoon Suk-yeol recently stated, “During periods of rising interest rates, financial authorities and institutions must cooperate to ensure that financial consumers’ interest burdens do not increase significantly.” Kwon Seong-dong, floor leader of the People Power Party, also criticized ‘bank profiteering.’ Within the Democratic Party, floor leader Park Hong-geun urged, “Please consider all financial policy support measures such as adjusting the speed and extent of market interest rate hikes, extending loan repayment periods, and developing products for vulnerable groups.”

However, strong opposition from the industry is expected during the bill’s discussion. A financial sector official said, “The target profit rate in the additional interest rate components is the core of business operations,” adding, “Disclosing this is like revealing confidential information.” Nonetheless, since both ruling and opposition parties are demanding this, there is a sense that the bill’s realization will be pushed forward.

Assemblyman Park said, “While it is fundamentally at the bank’s discretion to raise the additional interest rate when the base interest rate rises, at the very least, the key factors behind the increase in the additional interest rate should be disclosed to resolve information asymmetry and to encourage transparent price competition among banks, preventing loan interest rates from rising further due to collusion.”

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