In response to the passive response of the authorities that have been pushed back… Bank lending rates likely to be cut

Although the financial authorities belatedly put the brakes on the surge in interest rates in the banking sector, lenders and other markets are skeptical of its effectiveness. This is because the government’s intervention was only a basic verbal warning to “check it out” and maintained the existing position that “the relationship between loan regulation and interest rate hikes is not large”.

Banks, who were concerned about a large-scale loan rate check, are relieved of the government’s passive response. However, considering the market’s criticism, it is considering adjusting the loan interest rate in a way that revives the preferential interest rate.

Financial authorities evolve day after day as loan interest rates soar

According to the financial industry on the 21st, the financial authorities are actively explaining the recent market criticism that the interest rate on bank loans has soared due to loan regulations. Last week, the Financial Services Commission issued an unusually explanatory material about the rise in loan interest rates, and the Financial Supervisory Service also convened a vice-president in charge of credit at commercial banks and ordered a ‘check on loan interest rates’. This is in response to the criticism that banks, fearing a deterioration in interest income due to the regulation on the total amount of household debt, are raising lending rates by increasing the additional interest rate and reducing the preferential rate.

Financial institutions usually calculate the loan interest rate by adding the additional interest rate to the loan reference rate and then subtracting the preferential interest rate. The FSC emphasizes that the recent rise in lending rates was led by reference rates such as government bonds and bank bonds. In fact, the reference interest rate has been rising significantly from the second half of the year due to global tightening and the Bank of Korea’s sense of caution for a base rate hike.

As long as the total amount regulation continues, the loan interest rate will inevitably rise

According to the five major commercial banks (KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup), the average interest rate on credit loans at the end of last month was 3.45%, up 0.62 percentage points from June. While the reference interest rate rose by 0.44 percentage points, the additional interest rate increased by 0.15 percentage points and the preferential interest rate fell by 0.03 percentage points. As explained by the financial authorities, the effect of the additional interest rate and the preferential rate, which banks can change at their discretion, on the increase in the loan interest rate was more limited than the reference rate.

But the government explanation is half right and half wrong. Credit loan and fixed-type main loan interest rates had a large effect on the reference interest rate, but variable-type main loan rates were different. While the variable main loan interest rate based on the four major commercial banks, excluding the Nonghyup, rose by 0.9 percentage points this year, the reference interest rate, Cofix, rose only 0.39 percentage points. This means that the additional interest rate and the preferential rate have raised the floating rate main interest rate further.

In addition, the fact that the growth of government bonds and bank bonds has slowed since this month, but loan interest rates are still rising, also supports the power of the additional interest rate. As long as strong aggregate regulation continues, the banking sector has no choice but to keep raising the lending rate by using additional interest rates and preferential rates to protect against deterioration in profitability.

Financial authorities hastily started checking loan interest rates, but it is difficult to predict any major changes that financial consumers will feel. This is because the position of the financial authorities that the reference rate has raised the lending rate is stubborn. Although they warned of a surge in interest rates on bank loans to keep an eye on public opinion, it is not expected that the government’s verbal intervention in principle to “check” will not have a significant impact on the loan rate cut.

However, as the authorities have issued a warning, it is highly likely that banks will adjust the lending rate. Commercial banks are said to be considering a plan to slightly lower the loan interest rate by revitalizing the sharply cut preferential rate.

An official from a commercial bank said, “It is true that the preferential rate and the additional interest rate were adjusted to comply with the regulation on the total amount of household debt. in progress,” he said.

Park Kyung-dam reporter wall@hankookilbo.com