Banks pocketed more even as add-on rates fell, audit finds

Some banks have quietly widened their effective margin on loans since a revised Banking Act took effect in July, cutting add-on rates while simultaneously trimming preferential rates by an even larger margin, a National Assembly audit revealed Monday. KB Kookmin Bank and NH NongHyup Bank both lowered their add-on rates after the law change but reduced preferential rates by a greater amount, offsetting the intended benefit to borrowers.

Democratic Party of Korea lawmaker Min Byeong-deok raised the issue at the Financial Supervisory Service national audit held by the National Assembly's Political Affairs Committee on Monday. "They lowered the add-on rate while cutting the preferential rate by even more, so the banks' share actually grew," Min said. "Isn't this a balloon effect?"

The revised Banking Act bars banks from factoring statutory costs — including reserve requirements, deposit insurance premiums and contributions to the Korea Inclusive Finance Agency — into their add-on rates. The amendment was expected to reduce lending rates by roughly 0.15 to 0.30 percentage points, but Min said the actual impact has been limited at some banks because preferential rates were trimmed alongside the add-on rate reductions.

According to Min, KB Kookmin Bank's add-on rate fell 8 basis points, from 3.42 percent in June to 3.34 percent in August. (One basis point equals 0.01 percentage point.) Over the same period, however, its preferential rate shrank 31 bp, from 1.96 percent to 1.65 percent. As a result, the so-called "bank share" — the add-on rate minus the preferential rate — widened 23 bp, from 1.46 percent to 1.69 percent.

NH NongHyup Bank cut its add-on rate 26 bp, from 3.60 percent to 3.34 percent, but reduced its preferential rate by 61 bp, from 2.19 percent to 1.58 percent. Its bank share expanded 35 bp, from 1.41 percent to 1.76 percent.

By contrast, Shinhan Bank, Hana Bank and Woori Bank all narrowed their bank share over the same period — by 45 bp, 22 bp and 30 bp, respectively. Shinhan Bank's add-on rate fell from 3.03 percent to 2.49 percent, while Hana Bank's dropped from 3.62 percent to 3.53 percent. Woori Bank's add-on rate edged up slightly, from 3.05 percent to 3.06 percent, but it expanded its preferential rate from 1.30 percent to 1.61 percent.

Min also took issue with the limited transparency of the data banks submitted, saying it was difficult to verify how much of the statutory costs had actually been removed from add-on rates. "We need to see how much each bank deducted for each item — reserve requirements, deposit insurance premiums and the rest — but they submitted only a single line showing the total statutory costs," he said. "The breakdown of preferential rates was also withheld on grounds of commercial confidentiality."

Min called on each bank to confirm whether it had properly reviewed its add-on rate calculation framework under the self-audit obligation in the Banking Act, and demanded the relevant data be submitted before the comprehensive audit.

KB Kookmin Bank and NH NongHyup Bank said they would review the detailed data and report back separately.