Bank of Korea Says Policy Changes Will Aid Borrowers

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Bank of Korea Says Policy Changes Will Aid Borrowers

The Bank of Korea said Monday that its has eased monetary policy. The move, coupled with banks' efforts to increase loans to more creditworthy borrowers, has led to the lowest rate ever for loans to large companies.

On the same day, two commercial banks lowered savings rates, which in effect put the real rate of interest below zero.

The central bank said large companies were able to obtain loans at less than 8 percent interest. The bank said the average lending rate continued the decline that began in February, edging down to 7.89 percent last month, a 0.1 percentage point lower than it was in May. The rates applied to loans to large companies fell further, by nearly 0.3 percentage point to 7.83 percent. The average lending rate for smaller companies was also lower, at 7.53 percent, down by just under 0.1 percentage point.

A monetary analyst at the bank, Park chun-il, said the decrease was larger for major corporations because the banks sought to expand loans to firms with better credit ratings. "The competition among banks is driving rates down," he said.

Separately, Kookmin Bank and H&CB said they would cut the rate on 1-year term deposits to 4.9 percent, the lowest in history.

Analysts said that, when considering the 16.5 percent tax on interest income and 4.7 percent rate of inflation recorded in the first half of the year, actual rate of return would be in the negative territory.



by Kim Young-sae

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