FSS chief warns against action if loan and deposit margin widens beyond “reasonable” levels

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

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

Jeong Eun-bo, head of the Financial Supervision Service (FSS), made the remarks at an online press conference amid criticism that banks and other financial firms are faster to raise lending rates than to increase rates on deposits.

The rate hikes are part of the central bank’s desire to increase borrowing costs to control inflation.

But critics say the widening of the spread on loans and deposits only fattens the pockets of financial companies at the expense of consumers.

“It is undesirable and impossible for the government to get directly involved in (determining) the levels of interest rates that are supposed to be determined by supply and demand (in the market),” Jeong said.

“But financial regulators should ensure that the difference between the rates on loans and savings is determined in a reasonable way,” he said.

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

Jeong said that when lending rates rise at a faster rate than rates on deposits, it translates into more profits for financial companies, but places additional burdens on borrowers.

Borrowing costs have been rising at a rapid pace recently as the government tightened rules on lending amid concerns over rising household debt.

Last month, the Bank of Korea also raised its key rate by one percentage point to 1% to curb inflation and household debt, the second rate hike in three months.

Jeong said such strict lending rules are needed to preemptively manage market risks associated with household debt amid heightened macroeconomic uncertainty, but noted that efforts should also be made to help those who actually need to borrow to access loans. (Yonhap)


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