Korean banks cave to government pressure, lower loan rates

A customer walks past ATMs in Seoul on Feb. 16. [YONHAP]

Banks are lowering interest rates for loans and hiring more workers in response to government pressure.

KB Kookmin Bank said it will cut the mortgage rate and rates on loans for jeonse by up to 0.55 percentage points starting on Feb. 28.

The bank's spread between rates for loans and deposits was 1.81 percent in January, the highest since banks started disclosing the data last July and up from 1.10 percent in December.

It was also the highest among the five commercial banks, including Shinhan and Hana. The spread for household loans was 1.56 percent, also the highest and up from 0.65 percent a month earlier.

Woori Bank inched down mortgage rate for a five-year loan by 0.20 percentage points. Shinhan and Hana Bank are both reviewing the possibility of lowering the rate.

The movement also spread to internet-only banks.

KakaoBank cut the interest rate for unsecured loans by up to 0.70 percentage points to an annual 4.29 percent starting Tuesday.

The decision was to lower "interest payments at times of rising interest rate,” the bank said.

These measures follow the pressure by financial regulators to redistribute wealth.

President Yoon Suk Yeol said banks serve the “public” interest earlier this month.

The remarks were followed by Financial Supervisory Service (FSS) Gov. Lee Bok-hyun, who criticized banks for distributing their record profit last year to employees rather than the public. Lee said banks are taking advantage of their oligopoly structure, adding the regulators will mull ways to intensify competition in the bank industry.

Banks, which actively accepted voluntary retirement to downsize, will increase the number of employees it will hire in the first half of this year.

Twenty banks in Korea are expected to hire 2,288 workers in the first half of 2023, which is up 48 percent from a year earlier, according to the Korea Federation of Banks on Monday.

KB, Shinhan, Hana and Woori plan to hire 250 workers each in around April. NongHyup Bank plans to hire 500 new workers in February and May.

The financial regulators have also announced measures to expand a program that postpone the loan repayment period starting next month.

People who took out mortgages for houses priced below 900 million won ($694,000) and have the debt-to-income (DTI) ratio at 70 percent or above are able to only pay interest, not the principal, for three years, according to the Financial Services Commission (FSC).

People qualified for the program had been limited to those living at a house priced 600 million won or lower and can prove financial difficulties.

The program is scheduled to start March 2nd.

Programs that help the indebted self-employed refinance loans with lower interest rates will also be expand, added the FSC.

BY JIN MIN-JI [jin.minji@joongang.co.kr]