The average acceptance rate for household loan interest rate reduction requests in the financial sector was found to be lowest at banks. Despite generating tens of trillions of won in interest income every year, banks have been the most reluctant to accommodate financial consumers' requests for interest rate reductions. The problem is that the number of borrowers requesting interest rate reductions has increased due to the impact of high inflation and the economic downturn. Financial authorities decided to inspect the operational status of interest rate reduction request rights at financial institutions.
According to the Korea Federation of Banks on the 11th, the average acceptance rate for household loan interest rate reduction requests from 19 domestic banks in the second half of last year was 28.5% (simple average). This means that only 2 out of 10 applicants were accepted, while the remaining 8 were rejected. This is the lowest level compared to other financial sectors. The average acceptance rates for the second half of last year by sector were 66.9% for card companies, 51.8% for life insurance companies, 47.7% for non-life insurance companies, and 37.8% for savings banks.
The interest rate reduction request right allows borrowers to directly request financial companies to lower the interest rate when their income increases due to promotions, new employment, or when their credit improves from consistently repaying debts. Requests for interest rate reductions also apply to revolving fees from card companies in addition to loans obtained from banks, insurance, and savings banks. Each sector association publishes the operational performance of members' interest rate reduction request rights twice a year (January-June, July-December).
The average acceptance rate for household loan interest rate reduction requests at banks was 34.6% in the first half of 2023, but it fell to the 28% range in the second half after a reduction from 31.2% in the first half of last year. Other sectors also saw a decline in acceptance rates in the second half of last year, but the downward trend for banks has been notable over the past two years.
Nevertheless, the number of interest rate reduction request applications is increasing. The total number of applications received by banks last year was 2,569,999, which is more than 20,000 compared to 2,544,898 in 2023. The same was true for savings banks and insurance companies (combined life and non-life). The number of interest rate reduction request applications at savings banks was over 160,000 last year, a 30.4% (39,315 cases) increase compared to the previous year, while insurance companies saw about 130,000 applications, a 72.3% (56,136 cases) surge during the same period.
The increase in interest rate reduction requests indicates that many borrowers are seeking to alleviate their burdensome interest payments. A banking official noted, "It seems that the prolonged high interest rates have led to more borrowers inquiring about interest rate reductions to alleviate their interest burdens," adding that "the continuous guidance on interest rate reduction requests and simplification of application procedures have also contributed to the increase in applicants." The non-face-to-face application rate for interest rate reduction requests has reached about 90%. A financial authority official remarked that "the ease of applying for interest rate reduction requests online has led to a significant increase in demand, whether qualified or not, for people to apply anyway," which has also contributed to the lower acceptance rates.
Financial authorities plan to review the operational status to enhance the activation of interest rate reduction request rights. Since the legislation of the interest rate reduction request right in June 2019, financial authorities have diversified the disclosure contents, such as the number of applications and acceptances, interest reductions, and acceptance rates. They have also instructed financial institutions to inform applicants in detail about the reasons for non-acceptance. Nevertheless, the failure to increase the acceptance rate is attributed to opaque evaluation criteria. The financial sector argues that standardizing the evaluation criteria is an excessive market intervention. A representative from a major commercial bank stated, "Financial institutions have the authority to decide how to lower interest rates, but it is problematic to enforce uniform evaluation criteria."