South Korea’s maximum legal interest rate that private lenders can charge customers will be lowered to 20 percent per annum from July, the nation’s top financial regulator said Tuesday.

A revised enforcement ordinance to cut the maximum lending rate suggested by the policymaking Financial Services Commission in November was approved during a Cabinet meeting earlier in the day, officials said in a statement.

The move is aimed at easing interest rate burdens on beleaguered debtors. Currently, private lenders can impose a maximum 24 percent interest rate per annum by law, but the cap has often been disregarded in the market, a FSC official said. 

Under the new measure, nearly 87 percent of 2.39 million borrowers across the nation -- being charged with 20 percent interest rate per annum or more -- can expect to see a debt reduction of nearly 483 billion won ($436 million) every year, data showed. 

The authority will promulgate the revised ordinance on April 6 and the change will take effect on July 7 after a three-month grace period.

The latest rate cut, however, has raised concerns that first and second-tier banks are likely to either tighten their credit evaluation processes for low-income households or slash the total volume of loans they extend, industry sources said.

In response, the FSC vowed to introduce follow-up measures as early as April to increase the amount of government-backed loans, including the so-called “sunshine loans” set up in 2010 to help borrowers who earn less than 30 million won a year and those with low credit scores. 

Also, the authority plans to launch low-rate policy loan programs in which debtors can transfer their current credit loans at high interest rates of more than 20 percent, while setting up a pan-government task force designed to clamp down on illegal private finance operations as well as prohibit illegal advertising, officials said. 

By Choi Jae-hee  (cjh@heraldcorp.com)