Starting next month, a new regulation will prevent banks from passing on certain costs to borrowers in their mortgage interest rates. However, it is expected that borrowers will not see a significant change in their interest burden. While legal costs will be excluded, banks are likely to offset any rate reduction through adjustments in additional interest rates and reductions in preferential rates for household loans.
The Financial Services Commission announced on June 28 that starting July 1, amendments to the Banking Act and its enforcement decree will restrict banks from transferring costs such as reserve requirements, deposit insurance premiums, and contributions to guarantee institutions and the Korea Inclusive Finance Agency to borrowers' loan rates.
Previously, banks incorporated these legal contributions into their additional interest rates when calculating loan rates for various types of loans. With the implementation of the amendments, the government anticipates a potential interest rate reduction of up to 0.21 percentage points, depending on the product.
However, many experts believe that borrowers will find it difficult to feel the benefits of this rate reduction. This is due to banks managing multiple legal costs under a single additional interest rate category and recently reducing preferential rates and adjusting additional interest rates to strengthen household loan management.
Currently, KB Kookmin Bank and NH Nonghyup Bank have restricted access to MCI and MCG memberships, while Woori Bank has eliminated preferential rates for mortgage loans. IBK Industrial Bank and NH Nonghyup Bank have also reduced preferential rates and increased interest rates. Additionally, the highest mortgage rates at major commercial banks have risen to the mid-7% range, limiting the effectiveness of any potential rate reductions.
Some are concerned that government intervention in interest rates may intensify. Banks will be required to incorporate compliance with these regulations into their internal control standards at least twice a year. If financial authorities determine that banks have failed to manage loan interest rates appropriately, they could face penalties for inadequate internal controls.
A financial industry official stated, "While the amendment changes how legal costs are reflected in interest rates, banks must also consider the overall management of household loan volumes and soundness. If rates are not properly reflected, it could lead to stricter loan assessments or a reduction in lending to low-credit and low-income borrowers."
* This article has been translated by AI.
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