Lenders must do more to cut borrowers' interest burdens
The difference between the average interest rate on loans and the average rate on deposits has widened even as the government has introduced the interest rate disclosure system.
According to the Korean Federation of Banks, the average loan-to-deposit interest rate gap of the nation's top five commercial banks reached 1.51 percentage points in August, up 0.12 percentage point from the previous month. NH Nonghyup posted the biggest interest rate gap of 1.76 percentage points, followed by Shinhan, Woori, KB Kookmin and Hana.
The bigger gap is attributed largely to the fact that lending rates rose faster than deposit rates. NH Nonghyup explained that its bigger interest rate difference was a temporary phenomenon arising from the massive influx in August of short-term funds with maturities of less than six months, whose deposit rates are usually low. However, this explanation sounds less convincing, considering that some provincial banks as well as internet-only lenders reported a contraction in their loan-to-deposit rate gap. For example, Toss Bank's interest rate gap narrowed from 5.60 percentage points in July to 4.76 percentage points in August.
Since Aug. 22, banks have been required to publish the difference between their loan and deposit rates, a measure the new administration of President Yoon Suk-yeol took to keep interest rates down and make banks more competitive amid complaints that lenders are preying on consumers. There has been much anticipation for narrower interest rate gaps since then, but the reality has been quite the opposite.
Banks have vowed to share the pain amid criticism that they were posting record profits in the midst of soaring interest rates, while borrowers were reeling from the much heavier debt burden. As the loan-to-deposit interest rate gap widens contrary to popular belief, their promise might end in empty talk.
The banks, whether big or small, should stop claiming that they are "sharing the pain" and be more forthcoming about reducing borrowers' interest burdens. Otherwise, the political community might intervene to rein in the banks' greedy pursuit of profits.
The difference between the average interest rate on loans and the average rate on deposits has widened even as the government has introduced the interest rate disclosure system.
According to the Korean Federation of Banks, the average loan-to-deposit interest rate gap of the nation's top five commercial banks reached 1.51 percentage points in August, up 0.12 percentage point from the previous month. NH Nonghyup posted the biggest interest rate gap of 1.76 percentage points, followed by Shinhan, Woori, KB Kookmin and Hana.
The bigger gap is attributed largely to the fact that lending rates rose faster than deposit rates. NH Nonghyup explained that its bigger interest rate difference was a temporary phenomenon arising from the massive influx in August of short-term funds with maturities of less than six months, whose deposit rates are usually low. However, this explanation sounds less convincing, considering that some provincial banks as well as internet-only lenders reported a contraction in their loan-to-deposit rate gap. For example, Toss Bank's interest rate gap narrowed from 5.60 percentage points in July to 4.76 percentage points in August.
Since Aug. 22, banks have been required to publish the difference between their loan and deposit rates, a measure the new administration of President Yoon Suk-yeol took to keep interest rates down and make banks more competitive amid complaints that lenders are preying on consumers. There has been much anticipation for narrower interest rate gaps since then, but the reality has been quite the opposite.
Banks have vowed to share the pain amid criticism that they were posting record profits in the midst of soaring interest rates, while borrowers were reeling from the much heavier debt burden. As the loan-to-deposit interest rate gap widens contrary to popular belief, their promise might end in empty talk.
The banks, whether big or small, should stop claiming that they are "sharing the pain" and be more forthcoming about reducing borrowers' interest burdens. Otherwise, the political community might intervene to rein in the banks' greedy pursuit of profits.
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