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| Korea Federation of Savings Banks Chairman Lee Soon-woo |
Savings banks are denouncing the financial regulator's move to force them to lower their maximum interest rates, as "excessive market intervention."
The backlash came as the Financial Supervisory Service (FSS) has pushed savings banks to revise related provisions in a bid to halt their high interest rate practice without prior consultation.
Once the revision takes effect, saving banks will have to give customers a part of their earnings equal to the amount generated from the difference between the old and new maximum interest rates.
The Korea Federation of Savings Banks (KFSB), a lobby group, said Thursday that it will soon hold a meeting of CEOs to discuss how to respond to the measure ordering them to retroactively pay customers back "excessive profits."
"Savings banks will have to take the entire burden if we are to retroactively pay back our profits earned from interest rates," said an official asking not to be named.
"We understand there is a rampant view claiming savings banks have made handsome earnings thanks to high interest rates so we can shoulder the burden. But our earnings vary from one savings bank to another. It could be a severe blow to certain banks."
The financial regulator also plans to conduct on-site investigations of major savings banks to see how their high interest rate practices have increased payment burdens on households and small businesses.
Market insiders say, however, it is necessary for the FSS to oversee the interest rates as the nation's household and small business loans offered by non-banking financial firms have soared by 43.1 trillion won (38.15 billion) in the first half of the year to reach 831.25 trillion won.
"Low-income earners with poor credit rating can't get a loan from a commercial bank with a lower interest rate. Savings banks are a must for them," said an official at NH NongHyup Bank's loan department.
"However, economic indices are worsening at the moment, especially burdening low-income people. A certain degree of intervention is necessary to protect them."
According to the FSS, loans with interest rates of higher than 20 percent account for 75.7 percent of the nation's top seven savings banks' total lending in February.
Their earnings have rapidly grown over the past few years as the seven, including OK Savings Bank and SBI, posted combined interest income of 3.74 trillion won in 2017, up from 3.12 trillion won in 2016 and 2.49 trillion won in 2015.
In February, the statutory maximum interest rate was lowered to 24 percent from 27.9 percent. The Moon Jae-in administration aims to lower the rate below 20 percent during his presidency.
