"Banks Raising Loan Rates Despite Base Rate Cut"... Financial Supervisory Service Inspection

FSS Requests Data Submission
from Commercial Banks on Loan Interest Rate Changes

The Financial Supervisory Service (FSS) has launched an inspection regarding the situation where commercial banks raised loan interest rates despite the Bank of Korea lowering the base interest rate since October last year.

According to the financial sector on the 23rd, the FSS sent official letters to 20 banks on the 21st, requesting the submission of data on changes in benchmark and additional interest rates by borrower and product, the basis for these changes, and the status of preferential interest rate applications.

The FSS explained, "We plan to compile detailed data on changes in loan interest rates by bank to examine the rationality of the impact of the base rate cut on household loans."

This follows the Bank of Korea's reduction of the base interest rate by 0.25 percentage points each in October and November, lowering it from 3.5% to 3.0% annually, while major commercial banks' loan interest rates instead increased.

Since the second half of last year, banks have continuously raised additional loan interest rates under the pretext of curbing household loan demand due to pressure from financial authorities. Moreover, they have been criticized for increasing loan interest rates by significantly reducing the preferential interest rate discounts they usually applied.

According to the household loan interest rates based on new loan amounts disclosed on the Korea Federation of Banks Consumer Portal, the average household loan interest rates of the five major banks in December last year all rose compared to September, before the rate cuts.

Among the five major banks, Woori Bank raised its rate the most by 1.13 percentage points, followed by Shinhan Bank with a 0.7 percentage point increase. Although benchmark interest rates fell following the base rate cuts, the increase in additional interest rates and the reduced application of preferential interest rates caused this phenomenon.