As the loan-deposit margin (the gap between deposits and lending rates) surged to a record high and critical public opinion spread, banks are moving one after another to cut early repayment fee rates. It follows Vice Chairman Kwon Dae-young of the Financial Services Commission urging banks criticized recently for "interest profiteering," saying, "If such loan-deposit rate gaps persist while the base rate is being cut, it will be hard for the public to accept," and telling them to "come up with answers on their own."
According to the financial sector on the 1st, Woori Bank lowered the early repayment fee rate for newly issued household unsecured loans from 0.04% to 0.02%, a cut of 0.02 percentage points, starting that day. It also reduced the fee rate for other collateral loans such as jeonse loans secured by guarantees, cutting fixed-rate loan fees from 0.52% to 0.50%, down 0.02 percentage points. The early repayment fee rate for corporations' unsecured loans, which was 0.01%, was reduced to 0%, effectively eliminating it.
The previous day, Shinhan Bank cut the early repayment fee rate for real estate collateral loans, including mortgage loans, by up to 0.02 percentage points to 0.59%. Until just before the change, fixed-rate loans were at 0.61% and variable-rate loans at 0.60%. The early repayment fee rate for other collateral loans also fell by 0.02%. KB Kookmin Bank also lowered the early repayment fee rate for other collateral loans by 0.02 percentage points from the 12th last month.
An early repayment fee is a charge that a financial company imposes when a borrower repays a loan early within three years of the loan agreement. Financial firms have charged borrowers fees on the grounds that repaying the loan earlier than expected disrupts their fund management, and they need to compensate for this opportunity expense.
However, criticism that the expense shifted to borrowers is excessive has been raised repeatedly, and financial authorities mandated that, from Jan. 13 this year, early repayment fee rates be cut to half of previous levels. Accordingly, the average early repayment fee rate at banks for fixed-rate mortgage loans among real estate collateral loans fell by 0.87 percentage points, from 1.43% to 0.56%. The fee rate for fixed-rate unsecured loans also fell from 0.95% to effectively "zero (0)."
Banks' further reductions in fee rates are seen as a kind of last resort. Vice Chairman Kwon specifically asked them to "review the spread rate system," but with the stance of curbing household lending, it is difficult to lower lending rates, so as an alternative they are cutting early repayment fees. A bank official said, "Although financial authorities took issue with spread rates, in the current situation, lowering lending rates would inevitably increase household loans, making it hard to touch," adding, "We are devising measures such as reducing early repayment fees as an alternative."
The loan-deposit rate gap in the banking sector has been widening this year. According to the Korea Federation of Banks, the average loan-deposit rate gap for household loans excluding policy finance for low-income people at the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup—based on new loans in Aug. was 1.48 percentage points. Compared with the average in Sep. last year (0.74%), the figure has doubled.