Financial Supervisory Service ‘strengthens the right to demand rate cut’ amid controversy over loan rate hike

“Submit interest rate calculation method to banks”
Low acceptance rate by financial companies, limiting effectiveness

Financial Supervisory Service. News 1

As dissatisfaction with the recent loan rate hike has increased, the financial authorities have intervened verbally and ordered the financial sector to activate the right to request a rate cut.

Chan-woo Lee, senior vice president of the Financial Supervisory Service, said in a meeting with the vice presidents in charge of credit at eight commercial banks held at the Federation of Banks in Jung-gu, Seoul on the 19th, “Calculation and operation of each bank’s loan interest rate, especially the additional interest rate and preferential interest rate at the business site, is faithful to the best practices. We need to carefully examine whether it is being done properly and make improvements if necessary.” It is interpreted that the authorities, who had said that it was difficult to directly intervene (in interest rate adjustment), started to intervene verbally to induce interest rate cuts as consumer dissatisfaction grew. Senior Vice President Lee met with reporters after the meeting and said, “It is true that interest rates on loans and receipts change according to market interest rates, but considering the burden of the public, we will monitor for any unreasonable parts.”

Accordingly, the Financial Supervisory Service receives data from banks on how to calculate loan interest rates. The loan interest rate is determined by adding the additional interest rate corresponding to the risk cost to the funding rate applied when the bank draws funds and subtracting the preferential rate. This means that the bank will manage whether the bank takes excessive profits in the process of determining the additional and preferential interest rates.

The Financial Supervisory Service ordered the activation of the right to demand a rate cut. The right to request a rate cut is the right to request a rate cut from a financial company if the credit of the borrower improves due to a promotion or job change. However, there are analyzes that the effectiveness will be limited. According to the Financial Services Commission, the number of applications for interest rate cut requests increased from 200,000 in 2017 to 910,000, which is 4.5 times in 2020, but the number of applications received only increased from 120,000 to 340,000, 2.8 times more during the same period.

interest rate cut request
The right to request a financial company to “lower the loan interest rate” if the credit of the borrower improves due to employment, promotion, turnover, or increase in business sales. Not only commercial banks, but also savings banks, credit card companies, and insurance companies can apply.

Reporter Kim Ja-hyun

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