Banks must stop exploiting loan-deposit spread

Shinhan Bank, a South Korean commercial bank, raised the interest rate of its key money deposit loan by 0.2 percentage points. A flurry of other commercial banks will follow suit as KB Kookmin Bank too bumped up the rate of its housing mortgage loans by 0.15 percentage points last week.

　

Given that Shinhan’s previous interest rate stood between 2.77 and 3.87 percent per year, the latest measure might impose the burden of 4 percent or higher interest rates on those with lower credit ratings. The floating interest rate from KB Kookmin Bank already hovers around 2.80 to 4.30 percent. With the Bank of Korea having raised the base rate and the new leader of the financial authorities declaring a restriction policy, the commercial banks are charging relatively higher interest rates by shaving the amount of the “prime rate” discount.

The commercial banks claim that the bump-up was designed to avoid the balloon effect from the suspension and the reduction of housing mortgage loans, which was prompted by the regulatory warning. They talk as if it had been a painful yet inevitable step to prevent a stampede towards available loan providers. But this is simply not enough to explain the snail-paced rise of interest rate on savings accounts as against the swift surge of rates for housing loans. Understandably, the banks are finding themselves under fire that they are bent on making money from excessive loan-deposit margins.

Around half of the increased share of household loans that the local commercial banks offered this year was key money deposit loans and 68.5% was housing mortgage loans including key money deposits. Loans are the only means for the middle-income families to catch up with the skyrocketing housing prices of late: a 16.2-percent rise for the apartments nationwide, a 11.6-percent jump on the key money deposit. With the moving season coming up in autumn, people have no choice but to pony up the steep interest.

In the first half of this year, most local banks enjoyed bigger profits than ever. With the era of ultra-low rates coming to an end, their profits will grow even bigger. Most Koreans, if not all, are suffering the aftermath of the pandemic; this is by no means the ideal time to celebrate bloated profits accomplished by a convenient pretext of government mandates and a parsimonious payment of interest.