"There Are Concerns That Loan Interest Rates Will Be Raised to Improve the Performance of Interest Rate Reduction Requests"

Korea Federation of Banks Announces Bank-Specific Interest Rate Reduction Requests for the First Half of the Year on the 30th

"Difficult to Arbitrarily Raise Loan Interest Rates Due to Additional Interest Rate Calculation Standards"

[Asia Economy Reporter Sim Nayoung] An investigation into the status of interest rate reduction requests at the five major commercial banks during the first half of this year (January to June) revealed that Shinhan Bank recorded the highest number of accepted cases and the largest amount of interest reductions. NH Nonghyup Bank had the highest acceptance rate for interest rate reduction requests. On the 30th, the Korea Federation of Banks publicly disclosed the operational performance of interest rate reduction requests focusing on these details.

According to the Korea Federation of Banks, about 890,000 interest rate reduction requests were submitted in the first half of the year, of which approximately 221,000 were accepted, resulting in a total interest reduction of 72.8 billion KRW.

Among the five major commercial banks, Shinhan Bank granted the largest interest reduction amounting to 4.701 billion KRW through interest rate reduction requests. This figure includes both household and corporate loans. Shinhan Bank also had the highest number of accepted requests, approving 40,070 cases. However, when considering the overall acceptance rate, which is the ratio of accepted cases to total applications, NH Nonghyup Bank led with 59.5%.

Below is a Q&A from the Korea Federation of Banks regarding interest rate reduction requests.

Is the disclosure of performance intended to rank banks?

This disclosure is part of the detailed tasks of the 'Interest Rate Reduction Request Activation Plan' established in October last year in response to calls from the National Assembly and the media for the activation of interest rate reduction requests. It is not related to ranking banks in any way.

There are concerns that banks might initially set high interest rates at the time of loan contracts and lower them later to improve acceptance rates of interest rate reduction requests. What is your view?

Considering that loan interest rates are determined through competition among banks based on market supply and demand, it is difficult to arbitrarily raise loan interest rates to increase the acceptance rate of interest rate reduction requests. The detailed calculation method for loan interest rates follows the 'Model Guidelines for Enhancing the Rationality of the Loan Interest Rate System,' making it difficult to arbitrarily adjust components such as the additional interest rate.

Why is the acceptance rate of interest rate reduction requests in the banking sector lower compared to other financial sectors?

In the banking sector, the acceptance rate appears lower than in the secondary financial sector due to the high number of applications and the characteristics of borrowers and loans. The number of applications has significantly increased due to the expansion of non-face-to-face applications, enhanced publicity, and changes in statistical criteria (including duplicate applications). (34,1783 cases in the first half of last year vs. 888,619 cases in the first half of this year) Although the acceptance rate is relatively low in the banking sector, the number of accepted cases and the amount of interest reductions are the highest.

▲ Number of accepted cases: Banks 221,000, Insurance 5,000, Savings banks 13,000, Specialized credit finance companies 92,000, Mutual finance companies 12,000

▲ Amount of interest reductions: Banks 72.83 billion KRW, Insurance 630 million KRW, Savings banks 320 million KRW, Specialized credit finance companies 4.29 billion KRW, Mutual finance companies 170 million KRW

There are concerns that including duplicate applications in the statistics may distort the acceptance rate. What is your response?

To promote the system, there are no separate restrictions on the reasons for interest rate reduction requests, and even if an applicant submits multiple requests, if the reasons differ, they are not considered duplicate applications and are included in the statistics. However, since internet-only banks have many duplicate applications due to the activation of non-face-to-face applications, their acceptance rates may appear low. Therefore, it is advisable to compare based on the number of accepted cases and the amount of interest reductions. In fact, there was a case where 55 duplicate interest rate reduction requests were submitted for a single loan.

There are criticisms that explanations for rejection reasons of interest rate reduction requests are insufficient. What measures are being taken?

In response to past criticisms that some banks did not specify reasons for rejection when notifying applicants, a 'standard notification form' has been in use since this year. However, there are still concerns that consumers find it difficult to understand specific reasons. The internal credit evaluation system (CSS) used by banks to determine loan interest rates measures various borrower information through complex formulas. It is challenging to provide detailed itemized reasons when requirements are not met. Going forward, banks will consider ways to improve explanations to make them easier for consumers to understand.

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