Loans

FSS chief warns of action if loan-deposit margin widens beyond ‘reasonable’ levels

Jeong Eun-bo, chief of the Financial Supervisory Service, speaks during an online press briefing on Tuesday, in this photo provided by his agency. (FSS)
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Jeong Eun-bo, head of the Financial Supervision Service, speaks during an online press conference on Tuesday, in this photo provided by his agency.  (FSS)

Jeong Eun-bo, head of the Financial Supervision Service, speaks during an online press conference on Tuesday, in this photo provided by his agency. (FSS)

South Korea’s top financial regulator said Tuesday that his agency will take “necessary” measures if the spread between interest rates on loans and deposits widens beyond “reasonable” levels.

Jeong Eun-bo, the head of the Financial Supervisory Service (FSS), made the remarks during an online press conference amid criticism that banks and other financial firms are quicker to raise their loan rates than they are to raise interest rates on deposits.

The interest rate increases are in line with the central bank’s efforts to increase borrowing costs to tame inflation.

But critics say the widening of margins for loans and deposits is only fattening the pockets of financial firms at the expense of consumers.

“It is undesirable and impossible for the government to directly interfere in (setting) the interest rate levels that are supposed to be determined by supply and demand (in the market),” Jeong said.

“But financial regulators should pay attention to whether the difference between interest rates on loans and savings is determined in a reasonable manner,” he said.

“The position of the FSS is that it will take the necessary action if the difference widens beyond levels deemed reasonable.”

Jeong said that when loan rates grow faster than deposit rates, it increases financial companies’ profits, but imposes additional burdens on borrowers.

Borrowing costs have been rising rapidly lately as the government tightened rules on making loans due to concerns about rising household debt.

Last month, the Bank of Korea also raised the interest rate by a percentage point to 1 percent to rein in inflation and household debt, the second rate increase in three months.

Jeong said these tight lending rules are necessary to proactively manage market risks associated with household debt amid growing macroeconomic uncertainty, but noted that efforts should be made to help those who really need to borrow for loans. (Yonhap)

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