FSS chief warns banks not to get greedy

Financial Supervisory Service Governor Lee Bok-hyun speaks at a meeting with bank chiefs in central Seoul on Monday. [NEWS1]

Financial Supervisory Service (FSS) Governor Lee Bok-hyun continued to warn banks not to get greedy as interest rates rise.

“Banks are financial institutions that are in charge of making profit for shareholders but also carry out a public function,” Lee told reporters on Thursday. “The Banking Act clearly states the banks’ public function.”

On Monday, Lee met with bank chiefs and encouraged them to lower interest rates on loans to financially vulnerable people in order to help the economy reach a soft landing. Lee noted that rises in inflation and interest rates will add pressure on individual and corporate borrowers and may lead to insolvencies.

In response, banks extended promotions that offer lower interest rates.

KB Kookmin Bank extended a promotion that offers a 0.45 percentage point discount on mortgages that began in April. It did not specify an end date for the promotion. Its average rate on a mortgage last month was 3.85 percent compared to above four percent at other banks.

NH Nonghyup Bank lowered the rate on jeonse loans (long term rental deposits) by a 0.1 percentage point for some customers starting Friday. It is reviewing lowering some interest rates on loans, said its spokesperson.

Shinhan Bank and KEB Hana Bank also said they are reviewing adjusting interest rates to reduce pressure on borrowers. Online bank KBank lowered the rate on jeonse loans by up to 0.41 percentage points, but the company said the rate cut was decided before Lee’s remarks.

Lee also encouraged banks to build up their reserves to guard against insolvencies.

“The money market and corporate bond market may stagnate from surges in interest rates and the weakened won,” Lee added. He said the FSS will monitor financial companies' liquidity and “preemptively” make them increase their reserves if necessary.

The FSS “has no intention of and cannot meddle with the functions or the mechanisms of deciding rates,” Lee added.

“Stock and foreign exchange markets could see high volatility in the second half of this year, and interest rate increases are raising households’ cost of repayment,” said Hur Yong-suk, CEO of the Hyundai Research Institute. “Strengthening credit risk management by households and companies, and expanding the financial safety net for the self-employed and low income people is necessary.”

Outstanding household debt stood at 1,859.4 trillion won ($1.43 trillion) as of the end of the first quarter, up 5.4 percent on year, said the central bank on Wednesday. Outstanding corporate loans totaled 1,609 trillion won, up 14.8 percent in the same period.

BY JIN MIN-JI, SONG SEUNG-HWAN [jin.minji@joongang.co.kr]