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| ▲ Customers visit a bank branch in Seoul on Aug. 30, 2021, as local banks plan to tighten their screening for unsecured loans as part of efforts to cope with rising household debt, with the cap on new unsecured loans to be reduced to 100 percent of a borrower's annual income. (Yonhap) |
BOK report-loan rate
BOK report raises need for higher proportion of fixed-rate loans to ease debt burden
SEOUL, Oct. 18 (Yonhap) -- Local banks' deposit-loan rate differences have been widening recently due in part to their high proportion of floating-rate lending, whose interest payments have been rising sharply in line with ongoing monetary tightening, a central bank report said Tuesday.
The report compiled by the Bank of Korea (BOK) raised the need to explore ways to expand the use of fixed-rate programs to help ease financial burden on households amid sharp increases of the benchmark rate and a resulting rise in borrowing costs.
"About 70 percent of loans are based on floating-rate programs, which means loan rates react sensitively to market rates, while about 55 percent of savings are on-demand and other types of deposits that carry low costs and respond less sensitively to market rates," the report said.
"As a result, loan rates have risen more sharply than deposit rates compared with previous periods of interest rate uptrend," the report added. "Expanding fixed-rate programs is not always desirable but at least in periods of sharp rate increases, we need to consider ways to do so."
Banks have hiked their lending rates significantly in line with the BOK's aggressive increases of borrowing costs over the past year to tame inflation. Critics suspect that they have raised lending rates faster than rates applied to savings in ways that allow them to profit more at the expense of customers.
The BOK has lifted its benchmark interest rate by a combined 2.5 percentage points since August last year to combat inflation. It is expected to deliver more rate increases down the road amid worries over persistently high inflation pressure.
The report also stressed the importance of bolstering competition among banks as a reduction in competition could lead to widening of the loan-deposit rate differences and put increased financial burden on households.
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