The main opposition Democratic Party of Korea (DPK) is set to pressure the country’s top five commercial lenders to lower their surcharge, or discretionary premiums, a much-criticized means of defending their profit margins even when their borrowing costs dropped due to a Bank of Korea (BOK) key rate cut.
Also advancing the calls is Financial Supervisory Service (FSS) Governor Lee Bok-hyun who called for a close monitoring of how borrowing costs are set and whether the BOK’s 50 basis point cut the past three months were translated into lower interest burden for households and businesses.
Central to the demand of the main opposition is revision of a law governing surcharge formula, long criticized for a lack of transparency with arbitrarily set costs passed onto the borrowers.
The lenders are likely to concede and exclude insurance premiums and contributions in setting the surcharges, as long as they can avoid having the details of the interest rate charge method disclosed.
According to the financial market, the main opposition plans to hold a meeting with the heads of the country’s top five commercial lenders — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup – Monday at the Korea Federation of Banks (KFB) in Seoul.
In attendance will be DPK Chairman Rep. Lee Jae-myung, members of the party’s National Policy Committee and KFB Chairman Cho Yong-byoung.
The revision was first proposed by 11 DPK lawmakers in December of last year.
In setting the premiums, it seeks to exclude amounts sourced for reserves, insurance premiums and credit guarantee agencies.
Failure to comply will be punishable by up to one year in prison or a fine of up to 30 million won ($20,554).
The December draft is a less rigorous version of the June draft whereby banks were required to fully disclose the details of the surcharge formula.
The enforcement of the bill will translate to about 3 trillion won excluded from the previous formula, subsequently lowering the premium.
The lenders will no longer be able to keep the premium high, cornered by the loosening of the financial authorities directive to curb surging household debt, a source of a convenient justification for elevated premiums for more than six months.
Shinhan Bank lowered the surcharge by up to 0.3 percentage points last week. Its peers are likely to follow suit.
The five lenders registered a combined 11.78 trillion won in net income in the first nine months of last year, up 4.06 percent from the same period a year ago.
Their employee salary averaged 112.65 million won last year.
English (United States) ·