Top commercial Korean banks are moving to lower their lending rates further amid backlash from financial authorities and the public against its presentation of a social contribution plan that was deemed inadequate for easing pressing burdens from high rates.
Many have demanded South Korean banks share their profits with society after they enjoyed a bumper year on last year's interest rate hikes. The top four Korean financial groups -- Shinhan, KB, Hana and Woori -- saw their combined net profit last year hit a record high of 15.85 trillion won ($12.53 billion).
Last week, the Korea Federation of Banks announced a social contribution plan aimed at having a beneficial impact of around 10 trillion won over the next three years. However, the public and financial authorities criticized the plan for focusing on providing guarantees for loans with minimal actual contributions to society.
Financial Supervisory Service chief Lee Bok-hyun on Friday also condemned the plan.
“What we need is not a golden calf that we can get three years from now. There are demands for a handful of water that we can drink right away,” the FSS chief said.
In response, some major banks announced lower lending rates.
From Feb. 28, KB Kookmin Bank will offer up to 0.35 percentage point lower lending rates for those who take out housing mortgage loans.
Lending rates for borrowers who take out loans for "jeonse," a lump-sum deposit that tenants have to pay house owners, will also be lowered up to 0.55 percentage point.
Since current lending rates for housing mortgage loans stand at nearly 5 percent, once the change takes place, rates are expected to be lowered to the early and mid-4 percent range.
Another big lender, Woori Bank, decided to offer prime rates -- special rates which are applied to credit-worthy loyal customers -- to more clients.
From Tuesday, the prime rate is applied to all Woori Bank clients regardless of their past transaction history. This cuts the six-month variable interest rate of mortgage loans by 0.45 percentage point and the five-year variable interest rate of the housing mortgage loan by 0.20 percentage point.
According to industry sources, other top commercial banks like Hana and Shinhan are also considering adjusting lending rates.
The online-only Kakao Bank has reduced interest rates on credit loans to 4.286 percent at the lowest as well. Interest rates for overdraft accounts also were lowered to 4.547 percent.
Additionally, Kakao Bank has increased the maximum amount that customers can take out through credit loans and overdraft accounts to 300 million won and 240 million won, respectively.
Despite the banks' latest rate cuts, many ordinary Koreans view them as still too high, and it is questionable whether these additional cuts will change public opinion.
The widened gap between deposit and lending rates in January also deepened negative public sentiment against local banks.
According to the Korea Federation of Banks on Monday, the gap between the deposit and lending rates of all of the top five banks -- KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup -- widened.
This is the result of local banks significantly lowering their deposit rates compared to lending rates, which were adjusted modestly.
Meanwhile, local banks, who had been reducing the number of branches and workforce up until last year, also announced that they will hire more employees this year.
Local banks are aiming to hire 2,288 new employees in the first half of this year, a 48 percent increase on-year.