"During Interest Rate Hike... Legal Maximum Interest Rate Should Be Raised to 26.7%"

Im Seung-bo, Chairman of the Korea Asset-based Finance Association, is delivering the opening address at the 13th Consumer Finance Conference.

[Asia Economy Reporter Eunju Lee] Amid rising interest rates, there have been calls to raise the statutory maximum interest rate from the current 20% to 26.7%. It is diagnosed that the credit loan market in the loan finance sector has contracted due to last year's reduction of the statutory maximum interest rate, significantly limiting loan accessibility for financially vulnerable groups.

On the 15th, the Korea Loan Finance Association held the "13th Consumer Finance Conference" at 10 a.m. in the international conference room on the 2nd floor of the Bankers Association building, under the theme "Survival Strategies for Loan Finance in a Period of Rising Interest Rates."

Professor Choi Cheol of Sookmyung Women's University, who presented that day, diagnosed through his study titled "A Study on the Relaxation of Maximum Interest Rate Regulations for Stabilizing People's Livelihoods in a Period of Rising Interest Rates" that the appropriate interest rate in the loan finance market is being distorted due to maximum interest rate regulations. The appropriate interest rate in the loan finance market is variable depending on market conditions, but setting a fixed interest rate ceiling causes harm to both borrowers and loan finance operators.

Professor Choi explained, "With the maximum interest rate lowered from 24% to 20% last year, the size of the credit loan market in the loan finance sector was 7.029 trillion won as of the end of 2021, which is about 340 billion won less compared to the end of the previous year (7.367 trillion won)." He added, "This is a decrease of about 21% (1.9 trillion won) compared to the end of 2019, before the maximum interest rate reduction plan was announced." Accordingly, contrary to the policy intention aimed at inclusive finance, the opportunities for loan finance users, mainly from vulnerable groups, have decreased as a result. He further stated, "The study shows that the current excess demand in the loan finance market is about 2 trillion won (400,000 people), and if the statutory maximum interest rate is further lowered to 15%, excess demand of 12.8 trillion won (2.56 million people) will occur."

Therefore, Professor Choi believes that the maximum interest rate should be raised to at least 26.7% in line with economic conditions. He explained, "When the base interest rate and inflation rate are 3% and 5%, respectively, the median predicted interest rate in the loan finance market is about 32.2%," and added, "Flexible regulations that allow raising the maximum interest rate according to market conditions are necessary." He also diagnosed that, to expand inclusion of financially vulnerable groups, it is necessary to consider exempting the maximum interest rate application for short-term small loans targeted at these groups.

Im Seung-bo, chairman of the Korea Loan Finance Association, also stated in his opening remarks, "As a result of the 2021 reduction of the maximum interest rate, accessibility for financially vulnerable groups has shrunk, causing about 200,000 to 300,000 loan finance users to lose loan opportunities annually." He added, "Especially during periods of rising interest rates, the loan finance industry is losing its willingness to operate due to increased funding costs, so it is urgent to prepare measures to flexibly manage the appropriate level of the interest rate ceiling."

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