The financial authorities are monitoring the lag and pathway of how the base rate cut is transmitted to loan interest rates. As the rate cut begins in earnest, there are growing complaints that while deposit interest rates are rapidly falling, loan interest rates are only slightly decreasing much later.
According to the financial authorities on the 24th, the Financial Supervisory Service (FSS) is closely monitoring the fluctuations in banks' deposit and lending rates before and after the base rate cut, and is in the process of establishing a review plan for next year. An FSS official noted, "The complaint of borrowers is that loan interest rates are being lowered slowly; thus, it is deemed necessary to analyze why the lag occurs and to examine the speed of banks' loan interest rate adjustments."
The banking sector is uniformly lowering deposit rates following the Bank of Korea's two consecutive cuts in the key interest rate in October and November. The five major banks, including KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup, have lowered the base rates of their deposit and savings products by 0.05 to 0.4 percentage points since mid-month. Consequently, the interest rate on time deposits has fallen to just over 3%.
In contrast, the loan interest rates, which were raised for the purpose of managing the total amount of household loans, remain unchanged. This background has led to renewed criticism of banks as engaging in 'interest profit-making.' According to the latest data from October, the average household lending rate gap of the five major banks has expanded for three consecutive months to 1.05 percentage points, up from 0.58 percentage points in August and 0.74 percentage points in September. When the lending rate gap widens, bank revenue increases.
The FSS has determined through monitoring results that the new household loan interest rates began a downward trend starting in late November. An FSS official stated, "Starting from the end of November, new household loan interest rates are gradually declining," and added, "The balance-based household lending rate is expected to reflect the effects of the base rate cut in the first quarter of next year."
When the base rate is lowered, it typically first reflects in deposit rates and then subsequently in loan rates with a time lag. Deposit rates are immediately affected by market interest rates such as bank bonds. In contrast, the loan interest rates, such as the variable rate determined by the Cost of Funds Index (COFIX), are calculated based on a weighted average of the new transaction amounts and rates of deposit products handled by major banks in the previous month, resulting in a time lag.
However, despite these factors, concerns have been repeatedly raised that the adjustments in loan interest rates are not consistent. Specifically, the speed at which loan interest rates rise during periods of rate increases and the speed at which they decrease during rate cuts do not align.
The financial authorities discussed ways to streamline the interest rate determination system during last year's 'Banking Sector Management, Sales Practices, and System Improvement Task Force (TF)' and promoted the disclosure of 'additional charges,' but discussions were halted due to strong resistance from the banking sector. Banks argue that publicizing additional charges is essentially akin to disclosing costs. Discussions on disclosing additional charges are reigniting in political circles, as the Democratic Party has recently stated that it will prioritize a bill to disclose detailed breakdowns of additional charges.