Market Interest Rates Fall... Why Savings Banks' 19% Rates Remain Unchanged

Savings Banks Unable to Lower Interest Rates, Rates Instead Rise

Loans for Low-Credit Borrowers Become Harder and Interest Burden Increases

The average interest rates on credit loans from the five major savings banks in February either remained the same or increased compared to the previous month. Despite recent moves by commercial banks to lower loan interest rates following President Yoon Seok-yeol's 'money party' remarks, the interest rates at savings banks, which are frequented by low-credit borrowers, did not budge. Excluded from the financial authorities' interest rate reduction targets, the interest rates in the secondary financial sector, including savings banks, continue to soar, making it difficult for vulnerable borrowers to cross the loan threshold.

According to the Consumer Portal of the Korea Federation of Savings Banks on the 4th, SBI Savings Bank's 'Employee Loan' rose slightly to 19.47% in February from 19.02% in January. The 'Mid-interest Loan' product also increased somewhat to 15.93% from 15.42% the previous month. OK Savings Bank's 'Minus OK Loan' applied an interest rate of 19.04% in February for borrowers with a credit score in the 700s, who are the main users of this product, which is also higher than January's 18.96%.

Pepper Savings Bank's 'Peppers Emergency Loan' average interest rate jumped from 17.12% in January to 18.15% in February, and Korea Investment Savings Bank's 'Salmanhan Allegro' also rose from 14.01% to 15.47% during the same period. Welcome Savings Bank's 'Mid-interest Loan' similarly increased from 14.78% to 15.09%.

This contrasts with the five major commercial banks lowering interest rates on mortgage and credit loans starting last month. A senior official from the financial authorities said, "Savings banks have high interest rates, making it difficult for vulnerable borrowers with low credit scores to obtain loans, and even when they do, the interest burden is significant. The political focus is mainly on commercial banks used by the majority of the public, so vulnerable borrowers are relatively neglected."

The reason savings banks find it difficult to lower interest rates is that their loan funding mainly comes from deposits and savings. Commercial banks raise loan funds through both bond issuance and deposits/savings. Recently, as bond yields have fallen, commercial banks have had room to reduce loan interest rates, but savings banks have not.

Riding the base rate hike last year, savings banks pushed deposit and savings interest rates up to as high as 7%. Although the funding cost for loans increased this way, the legal maximum interest rate caps loan rates at 20%, forcing savings banks to endure losses. This is also why savings banks' performance has deteriorated. Another savings bank official said, "Unlike commercial banks, we currently lack the capacity to lower loan interest rates."

Rising delinquency rates at savings banks also hinder interest rate cuts. When delinquency rates rise, banks must manage risks and tend to adopt a conservative stance by reducing loans. According to the Korea Deposit Insurance Corporation, the average delinquency rate of 79 savings banks nationwide was 3.0% in the third quarter of last year, up 0.4 percentage points from the previous quarter.

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