Survey Predicts Lending, Savings Rate Declines

Financial institutions are predicting that interest rates for new savings accounts and loans will go down during the second quarter, according to a Bank of Korea survey reported Monday.

The survey of 47 financial institutions by the central bank showed that the decrease in lending rates is expected to exceed the decrease in savings rates, narrowing the profitability of bank lending.

Half the financial institutions in Korea, including 45 percent of domestic commercial banks, reportedly had difficulties for employing funds during the first quarter. Only 27 percent of the financial institutions reported such a problem during the fourth quarter of last year.

"Despite improved finances, domestic banks have difficulties in finding sound business borrowers because companies show a higher general rate of credit risk," said a Bank of Korea source, who predicted that commercial banks would continue to show interest in the household loan market, and would mark time until corporate borrowers look more creditworthy by using more funds in short-term products such as call loans and bonds.

by Suh Kyoung-ho