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Private lenders, savings banks lash back at state-led overhaul

The government’s recent financial reform plan which focuses on reinforcing the competitiveness of banking groups triggered a backlash from the secondary market, including private lenders and mutual savings banks.

Loan companies reacted against lowering the interest rate ceiling, while small-sized savings banks claimed to be discriminated against bigger units affiliated with a holding company.

The Financial Services Commission said earlier this week that it will lower the maximum interest rate for private lenders to 29.9 percent from the current 34.9 percent.

“If the interest rate ceiling falls below 30 percent, a majority of loan companies will experience a reverse margin and thus refrain from approving risky loans to low-credit customers,” said an official of the Consumer Loan Finance Association.

“As a result, low-credit borrowers will be driven to the illegal loan market for quick money.”

It is the regulator’s claim that most lenders can financially afford to lower the rate ceiling. It also pledged to reinforce supervision on illicit loan sharks and to expand state-backed microloans for the lower-income bracket.

But few alternatives are currently available for those who will be squeezed out of the conventional loan service.

Savings banks, too, complained that the FSC favored large financial companies by allowing them to connect the financial products of their subsidiaries.

An example is KB Financial Group’s comprehensive car financing package which allows KB card users to receive extra loan benefits through KB Capital’s installment financing program.

Banking groups have so far been passive in promoting their affiliated savings banks and related products, but with the recent measures, they will infiltrate further into the corresponding markets, according to savings banks officials.

There are currently over 3,500 savings bank branches that are affiliated with a large holding group, whereas there are only some 260 that are not.

Financial authorities, however, refuted the savings banks’ argument.

“Independent savings banks, too, can establish alliances with each other to create a connected financial product,” said an FSC official.

 By Bae Hyun-jung (tellme@heraldcorp.com)

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