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Rate Policy Is Aimed At Boosting Banks

Feb 12,2001
The government plans to encourage banks to keep interest rates constant and to charge fees according to the amount of money customers have in their accounts. In other developments, the government decided not to reduce the maximum interest rate banks can charge on loans even though many banks lowered rates on deposits early this year.

Lee Keun-young, chairman of the Financial Supervisory Service, said Sunday, "It is better not to reduce interest rates on loan. The rate difference between deposits and loans in developed countries is usually 4 percent, which is double of the difference for domestic banks. A 2 percent difference for the domestic banks is not leading toward profitability. Promoting public interests at the expense of profitability only causes insolvency of the banks, which means pouring in tax-based public funds."

He also said, "to prevent banks' poor performances, the banks should turn their focus to profitability."

A Korea Institute of Finance researcher, Ji Dong-hyun, said, "to raise the return on assets to 2 percent in line with banks in developed countries, the rate difference between deposits and loans must exceed 4 percent."

Domestic banks lowered rates on deposits by 0.5 to 0.7 percentage point, and the Bank of Korea also cut the call rate, the rate for overnight loan between banks, by 0.25 percentage point. Most banks plan to maintain the rate on loans for the time being.

by Yi Jung-jae