A rate inversion in which people with high credit scores pay more loan interest than low-credit borrowers continues. Banks have expanded rate benefits for vulnerable groups under the inclusive finance policy championed by the Lee Jae-myung administration. The financial sector says support for vulnerable groups is necessary, but if the inversion persists, customers will have less incentive to manage their credit scores, top-tier customers may leave, and financial firms' soundness could deteriorate.
According to the Korea Federation of Banks on the 3rd, the revolving credit (overdraft) lending rate for the lowest-credit borrowers (credit score 600 or below) at Hana Bank, based on new loans in Nov. last year, was 3.47% annually. That was 1.26 percentage points (P) lower than the 4.73% for the highest-credit tier (951–1,000 points). The rate for customers with scores of 601–650 was also 3.5%.
At Woori Bank, the lending rate for the lowest-credit borrowers was 4.98%, lower than the 5.1–5.34% for the 751–950 tier. At KB Kookmin Bank, the lowest-credit rate was the lowest during Sept.–Oct. last year. Among the four major banks, only Shinhan Bank is maintaining the lowest-credit rate above 10% annually.
In the 650-and-below range, most borrowers are those using low-income financial products such as Saeheulim Holssi and those whose credit ratings fell due to arrears on existing loans. The financial sector interprets the inversion as banks providing rate-cut benefits on low-income financial products. The loan limit for Saeheulim Holssi is 30 million won, but the limit for the 650-and-below tier is said to be around 10 million won.
In Sept. last year, KB Kookmin Bank lowered the upper-end rate for Saeheulim Holssi from 10.5% to 9.5%. Shinhan Bank cut its rate by 1.8 percentage points in the same month, and Woori Bank lowered by 0.3 percentage point while offering up to a 3 percentage point reduction for borrowers who repay faithfully.
Banks are lowering lending rates for the lowest-credit borrowers because President Lee emphasizes inclusive finance. At a Cabinet meeting in Sept. last year, Lee said lending rates for low-credit borrowers were high, adding, "We lend a lot at ultra-low rates to ultra-preferred customers. Couldn't we add even 0.1% more burden there and then lend part of it cheaply to people who have difficulty accessing financial institutions?"
The financial sector says support for those in hardship is necessary, but if a market-distorting rate inversion drags on, various side effects may arise. A bank official said, "The expense of cutting rates for the lowest-credit borrowers is borne by the bank at first, but in the future the preferential spreads for high-credit customers could be reduced."