Financial Services Commission Chairman: "It's Time to Lower Bank Loan Interest Rates, and There Is Room to Do So" (Comprehensive)

"Room to Lower Bank Loan Rates, Review Planned"
"Opposes Easing DSR to Revitalize Local Real Estate"

Kim Byung-hwan, Chairman of the Financial Services Commission. Photo by Jo Yong-jun

Kim Byung-hwan, Chairman of the Financial Services Commission, stated that domestic banks have room to lower interest rates on new loans and that he will review this matter. He also expressed his opposition to the political calls for temporarily easing the Debt Service Ratio (DSR) to resolve unsold properties in local real estate markets.

On the 18th, Chairman Kim attended the plenary session of the National Assembly's Finance and Economy Committee and responded to Rep. Yoo Dong-soo of the Democratic Party of Korea, who pointed out that while the base interest rate is falling, banks' additional interest rates are actually rising, by saying he would review the situation.

Rep. Yoo criticized, "While the base interest rate is decreasing, the four major financial holding companies have increased their net interest margin, resulting in a more than 10% increase in net profit last year. Isn't this a failure of financial authorities' management?"

In response, Chairman Kim said, "From July to August last year, household debt increased significantly, so the priority was to reduce the amount of debt through policy, and banks raised interest rates on new loans to respond to this. Later, we issued guidelines to strengthen loan screening instead of responding with further interest rate hikes." He added, "We believe there is room to lower interest rates on new loans, and we will review this."

Lee Bok-hyun, Governor of the Financial Supervisory Service, also stated, "There needs to be some time lag for the effects of the base rate cut to reach the public," adding, "We are aware that high interest rates are causing difficulties for small business owners and companies, so we will consider this in future policies."

"Other Effective Measures Needed Rather Than DSR Easing"

Chairman Kim expressed opposition to political demands to ease DSR regulations to revitalize the stagnant local real estate market.

In response to Rep. Kim Sang-hoon of the People Power Party's assertion that DSR regulation easing is necessary to boost local real estate, Chairman Kim said, "All ministries share the recognition that the local construction market is struggling and that support measures are needed," but added, "It is necessary to try other more effective policies first."

Chairman Kim said, "From what we hear on the ground, there is doubt whether unsold properties in local areas are due to DSR regulations," adding, "The DSR system was established through a difficult process, and if we exclude local areas this time, it would undermine the credibility of the policy."

He also questioned, "Didn’t you see the market criticism when the application of the second phase of DSR was postponed by two months last year?"

In response to Chairman Kim's remarks, Rep. Kim Sang-hoon repeatedly urged the government to come up with effective measures. The lawmaker emphasized, "Construction has a very large impact on the economy, so now is the golden time to present countermeasures."

Chairman Kim announced that the amount of policy loans this year will be supplied at the same level as last year. He said, "We are in the final stages of discussions to supply policy loans such as Didimdol and Beotimok loans at the scale of 55 trillion won, the same as last year, and plan to announce this within the month."

Regarding the household loan supply target, he explained in response to Rep. Kim Yong-man of the Democratic Party, "We are in the final stages of consultation with the Ministry of Land, Infrastructure and Transport under the goal of managing the household loan growth rate within the nominal growth rate (3.8%)."

Rep. Kim Yong-man requested, "The scale of policy loans, which is usually set in January, has not yet been decided, making it difficult for commercial banks to manage loans. Please finalize the clear scale quickly."

Support for Supplementary Budget, but Scale and Content Need Consideration

Chairman Kim expressed a positive stance on the supplementary budget (Chugyeong) as a measure to improve people's livelihoods.

In response to Rep. Kang Jun-hyun of the Democratic Party's question about the necessity of the supplementary budget, Chairman Kim said, "There are difficulties in people’s livelihoods, and there are various issues since the inauguration of the new U.S. administration, so there is definitely a fiscal demand. Discussions on the supplementary budget need to begin in the national policy consultation body."

However, he added, "Our government passed the budget at the end of last year and is now in the execution phase, so both the Financial Services Commission and others are focusing on executing the given budget as quickly as possible," and said, "I hope discussions in the ruling-opposition-government national policy consultation body proceed promptly, as the scale and content are important."

Regarding the supplementary budget, Governor Lee said, "I basically agree with the supplementary budget but believe that monetary policy easing will have a greater effect," adding, "It would be desirable for both to proceed together."