FSS demands more disclosure from banks on risk premiums

The financial regulator yesterday unveiled a set of measures to overhaul the risk premiums that banks charge individual and corporate borrowers in an effort to help ease their interest burden.

The measures, put forward by the Financial Supervisory Service (FSS), will require banks to publish their base lending rates and risk spreads on mortgages, unsecured household loans and loans for SMEs from January.

Local lenders will have to disclose their combined lending rates every month according to a new 10-scale credit rating system mapped out by the Korea Federation of Banks (KFB).

Currently, banks only disclose the top and bottom lending rates to the KFB regardless of borrowers’ credit ratings.

“The new measures will allow borrowers to better compare interest rates offered by banks,” Lee Gi-youn, the deputy FSS chief for the banking division, told reporters. “We expect the move to foster a more prudent rate-setting climate.”

The move comes as risk premiums have been partly blamed for high interest rates on banking loans, which increase borrowers’ financial burdens while enabling banks to rake in big profits.

Some experts pointed out there is a big gap between bank lending rates and the country’s benchmark interest rate, even after the central bank’s consecutive key rate cuts in July and September to 2.75 percent.

According to the Bank of Korea, the bank lending rate for SMEs and mortgages came in at 5.50 percent and 4.40 percent each in August. For credit loans, the rate stood at 6.28 percent.

The FSS added it will advise banks to step up their internal checks over the rate-setting process for loans, while keeping tabs on the overall lending system.

Yonhap