A senior official of South Korea's financial regulator on Friday urged major banks to determine their lending rates based on "best practice" and make improvements in relevant procedures if necessary.

Lee Chan-woo, first senior deputy governor of the Financial Supervisory Service (FSS), made the remark in a meeting with officials of eight banks handling credit affairs in Seoul amid growing worries that the recent steep hike in loan rates could add to the financial burden on households.

"It is necessary to take a close look at whether calculation of lending rates and its operation are carried out faithfully in accordance with best practice and make improvements if necessary," Lee said.

"With regard to rates on deposits, it is also necessary to see whether they are calculated in a reasonable way that takes into consideration market conditions," he added.

The meeting was held as worries are growing that recent steep interest hikes on lending will likely worsen the financial burden on many households.

Borrowing costs have been on the rise in line with the government's recently beefed-up efforts to tighten loose lending rules put in place to prop up the economy affected by the coronavirus pandemic.

During the meeting, Lee also called for banks to allow clients to benefit from their right to call for a rate cut in consideration of their improved financial status.

The right was legalized in 2019 under which borrowers are allowed to demand rate adjustments when their wealth increases or credit ratings improve. Banks, however, have been under criticism for making insufficient efforts to let their clients know about the option. (Yonhap)