South Korea’s maximum statutory interest rate that private lenders can charge customers will be lowered to 20% per annum from July, the country’s main financial regulator said on Tuesday.

A revised enforcement order to reduce the maximum loan rate suggested by the Financial Services Commission in November was approved at a cabinet meeting earlier today, officials said in a statement.

This decision aims to ease the burden of interest rates for debtors in difficulty. Currently, private lenders can impose a maximum interest rate of 24% per year by law, but the cap has often been ignored in the market, an FSC official said.

Under the new measure, nearly 87% of the 2.39 million borrowers across the country – charged at an interest rate of 20% per annum or more – can expect debt reduction of nearly 483 billion won ($ 436 million) each year, according to data shown.

The authority will enact 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 tighten up their credit assessment processes for low-income households or reduce the total volume of loans they are making. ‘they agree, industry sources said.

In response, the FSC pledged to introduce follow-up measures as early as April to increase the amount of government guaranteed loans, including the so-called “sun loans” put in place in 2010 to help borrowers earning less than $ 30. million dollars a year and those with low credit scores.

In addition, the authority plans to launch low-rate policy loan programs in which debtors can transfer their current credit loans at high interest rates of over 20%, while setting up a group of whole-of-government work designed to tackle illegal private finance operations. as well as to ban illegal advertising, officials said.

By Choi Jae-hee (cjh@heraldcorp.com)