Banks will in principle be barred from factoring various statutory costs into add-on margins when calculating loan interest rates. They will not be able to add reserve requirements and deposit insurance premiums to loan rates, as well as contributions to guarantee funds and increases in the education tax.

The Financial Services Commission said on Dec. 15 that a revision to the Bank Act limiting the inclusion of statutory costs in bank loan rates passed the National Assembly plenary session on Dec. 13. The revised law is expected to take effect around June 2026, six months after promulgation.

Banks have so far reflected contributions to guarantee funds such as the Credit Guarantee Fund and the Korea Technology Finance Corporation in add-on margins by classifying them as statutory costs under the Korean Federation of Banks' self-regulatory best practices guideline to improve the rationality of the loan rate system. For example, when issuing corporate working capital loans, banks add about 0.4 percent to the loan rate by combining contribution rates for the Credit Guarantee Fund, the Korea Technology Finance Corporation and the Korea Federation of Credit Guarantee Foundations.

Criticism has been raised that a loan rate calculation framework is needed that takes into account both the beneficiary-pays principle of the policy guarantee system and banks' social responsibility.

Under the revision, banks cannot reflect in loan rates reserve requirements under the Bank Act, deposit insurance premiums under the Depositor Protection Act, and contributions to the Korea Inclusive Finance Agency under the Act on Support for the Financial Life of the Working Class.

They are also in principle barred from reflecting contributions to various guarantee funds, including the Credit Guarantee Fund, the Korea Technology Finance Corporation, the Agricultural and Fishery Credit Guarantee Fund, the Korea Federation of Credit Guarantee Foundations and the Housing Finance Credit Guarantee Fund.

An exception allows contributions to guarantee funds under individual laws to be reflected in loan rates up to a level below a ratio set by presidential decree, within a limit of 50 percent or less of the contribution rate stipulated in the relevant law.

Banks also cannot reflect in loan rates the portion of the education tax rate that was raised for financial and insurance businesses under a revision to the Education Tax Act that recently passed parliament. The 1.0 percent increase in the education tax rate applied to the bracket for profit amounts exceeding 1 trillion won is excluded from the calculation of add-on margins.

Banks' internal management obligations will also be strengthened. Banks must check at least twice a year whether they are complying with the ban on reflecting statutory costs in loan rates, and record and manage the results. They must also reflect related matters in internal control standards.

If banks violate the rules, they may face administrative sanctions such as corrective orders or business suspensions. Executives and employees may be sanctioned through measures including suspension of duties, recommendations for dismissal, discharge, pay cuts and reprimands.

The Financial Services Commission said it will begin preparations for implementation, including drafting subordinate regulations and developing banking sector computer systems. After the law takes effect, it plans to work with the Financial Supervisory Service to continuously check compliance with the ban on reflecting statutory costs in loan rates.