SEOUL, Oct. 18 (Korea Bizwire) – South Korean banks have been accused of staying off the radar and making profits through high additional interest rates for banking products such as loans, despite government efforts to lower interest rates.
According to data from the Financial Supervisory Service (FSS) revealed by lawmaker Park Chan-dae, who is a member of the National Policy Committee, the average additional interest rate among the 16 major banks in South Korea as of June was estimated to be 3.28 percent, up 0.33 percent from 2013.
The average additional interest rate can be compared to the standard interest rate, what is known as the base money rate set by the Bank of Korea, which dropped from 2.85 percent to 1.5 percent over the same period of time.
While the standard interest rate decreased, additional interest rates at over 10 banks increased, resulting in the loan interest rates at major South Korean banks dropping from 5.81 to 4.79, a mere 1.02 percent decrease.
Additional interest rates, unlike the standard interest rate, are determined freely by each bank based on their financial situation and risk assessment as well as their budget, meaning loan interest rates are set within a bank’s discretion, irrespective of the standard rate in the financial market.
Banks have been making additional profits this way, despite the government’s efforts to lower the standard rate, according to the data from the FSS.
Among banks that have additional interest rates that are over three times higher than the country’s base money rate were Citibank Korea, Jeonbuk Bank, and Kwangju Bank, while the additional interest rates at Kyongnam Bank, Busan Bank, Daegu Bank, Hana Bank KEB, Jeju Bank and Suhyup Bank were over twice as high as the base money rate.
This has been an issue raised repeatedly by civic groups at the National Assembly, as banks have been insisting that the determination of additional interest rates is a business secret, a practice many believe allows banks to get away with making huge profits through loan interest.
“Excessive additional interest rates that don’t consider market trends can deprive people of their chance to pay back their debt and stand back on their own feet again,” Park said.
Hyunsu Yim (email@example.com)