FSC chief defends financial firms under rate fixing probe


Local banks and brokerages are facing mounting consumer distrust over allegations that they rigged the interest rates of certificates of deposit, which, if true, would have caused households’ borrowing costs to rise.

With nearly half of household loans tied to the benchmark CD rate, it is widely perceived that households had to pay higher interests because the CD rate was kept above market rates.

The average interest rate for household loans rose to 5.51 percent in May, up from 5.46 percent in July last year, according to the Bank of Korea. The average interest rate for fresh corporate loans, most of which are tied to bank debentures, however, fell from 5.98 percent to 5.74 percent in the same period. The CD rate shed a mere 0.05 percentage point in the same period to 3.54 percent.

The Fair Trade Commission is speeding up an investigation into 10 brokerage houses and nine banks after at least one of them confessed to conspiring with others to fix the CD rate.

The Financial Services Commission, however, is not supportive of the antitrust watchdog’s inquiry.

FSC chairman Kim Seok-dong said he didn’t think the financial companies colluded, throwing cold water on the investigation shortly after the FTC expressed confidence over the circumstantial evidence it collected.

“There is not much the firms can gain by rigging market indices when interest rates have been liberalized and financial companies can set their own spreads,” Kim said during a parliamentary interpellation session on Friday.

“I don’t think the companies conspired (to fix the rate).”

Gov. Kwon Hyouk-se of the Financial Supervisory Service, an executive arm of the FSC, also told reporters on Friday that the possibility of rate-rigging was low.

Other officials at the FSS and FSC expressed regret over the fact that the FTC launched the probe without prior consultations with them.

If the banks and brokerages are found guilty of collusion, the FSC will be held responsible for failing to supervise them properly. The FSC is yet to make any progress in finding alternatives to replace the CD rate as CD issuances dropped sharply, raising criticism that the CD rate was no longer representative of other market rates.

Financial authorities have urged the banks since early this year to develop a new benchmark rate for loans that can replace the CD rate, but the banks didn’t even start discussions.

The 91-day CD rate dropped for four days in a row after the investigation began last Tuesday. It fell to 3.21 percent on Friday, down 0.01 percentage point from the day before but still higher than the three-month bank debenture yield of 2.89 percent.

Meanwhile, KB Kookmin Bank admitted to fabricating loan documents, signaling a further blow to its reputation already undermined by the rate-fixing probe.

The police began a probe last week after about 30 people filed a suit against the nation’s largest bank for allegedly cooking up loan contract papers.

KB Kookmin employees revised the numbers on contract papers to advance the loan payment due dates. The numbers have been changed back, the bank said, adding that the involved employees quit last year for personal reasons, and the bank is not responsible as it did not order the fabrication.

The chief of the branch that forged the figures, however, reentered the bank as a contract worker after voluntary resignation, while the deputy chief and the manager in charge were promoted and transferred to the bank’s headquarters and a credit card subsidiary, respectively.

By Kim So-hyun (sophie@heraldcorp.com)