"We will encourage the reduction and adjustment of mid-interest rates (weighted average, maximum interest rate) in the financial sector"
[Asia Economy Reporter Park Sun-mi]#. Mr. C, a salaried worker in his 30s, recently got promoted and decided to exercise his right to request a lower interest rate on his existing loan of 50 million KRW. He prepared the necessary documents and consulted at the bank counter but was told that the loan interest rate could only be reduced by up to 0.5%p. Hoping for a better option, Mr. C compared loan products through a mobile loan interest rate comparison service under the condition of repaying the existing loan and executing a new loan (refinancing). As a result, he found out that a loan with an interest rate 2%p lower than the existing one was available. Mr. C applied for refinancing via mobile without visiting the bank, and the refinancing was completed within an hour, enabling him to save 1 million KRW annually in interest costs.
The Financial Services Commission announced that it will focus on building refinancing infrastructure, revitalizing mid-interest rate loans, and strengthening the right to request lower interest rates this year to enhance the function of regional and low-income financial intermediation.
On the 3rd, the Financial Industry Bureau of the Financial Services Commission stated in its 2021 business plan announcement that since the statutory maximum interest rate is being lowered (from 24% to 20%), it will encourage the financial sectors to also lower and adjust mid-interest rates (weighted average, maximum interest rates) after March. To improve financial access for middle- and low-credit borrowers with insufficient transaction history, it will enhance the rationality of interest rate calculation, such as activating alternative credit evaluation models in savings banks. To prevent a decrease in loans to middle- and low-credit borrowers due to interest rate reductions, additional incentives (e.g., additional loan-to-deposit ratio) will be provided to savings banks that handle many mid-interest rate loans.
Supervision will also be strengthened to ensure that internet-only banks can innovatively expand loans to middle- and low-credit borrowers in line with the law and the purpose of their introduction.
Kwon Dae-young, Director of the Financial Industry Bureau at the Financial Services Commission, said, "Despite the introduction purpose that internet banks should improve accessibility for middle- and low-credit borrowers, the actual results have been insufficient. For example, the proportion of borrowers with credit grade 4 exceeds 40% in banks but is only about 20% in internet banks. This does not align with the original introduction purpose. Internet banks meet expectations in terms of convenience but fall short in accessibility for middle- and low-credit borrowers. Internet banks are aware of this issue."
The Financial Services Commission also plans to build a refinancing infrastructure from October that allows switching to lower interest rate loan products through a non-face-to-face one-stop service. This platform will enable intermediation of loan product transfers among multiple financial institutions within a single system, similar to the Account Info system.
From the consumer's perspective, after comparing loan interest rate information from all financial institutions, they will be able to select the most favorable loan product and request refinancing. The plan envisions consumers moving to lower interest rate loans at lower costs conveniently without visiting branches.
Furthermore, the right to request lower interest rates will be strengthened. The Financial Services Commission announced that based on surveys conducted after March, it will promote disclosure, publicity, and institutional improvements related to the right to request lower interest rates. By enhancing disclosure and publicity of the actual status of the right to request lower interest rates, consumer awareness and utilization will be increased, and by analyzing operational status, it will encourage the discovery and dissemination of best practices. By the end of the year, the right to request lower interest rates will also be introduced in the mutual finance sector.
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