Korean banks probed for fixing CD interest rates

Nine major South Korean banks arebeing investigated by the Fair Trade Commission on suspicion of colluding to fix the interest rates on certificates of deposit.

Investigators who were dispatched to the headquarters of the banks, including Kookmin, Hana, Woori and Shinhan, yesterday, scrutinized documents and data related to the banks’ CD rates that they confiscated during the raids.

The on-site investigation comes just one day after the FTC seized similar materials from 10 local brokerages.

Critics say the system gives brokerages room to manipulate the rates.

Suspicion that banks have been colluding in this area gained ground after the rate stayed at 3.54 percent for the sixth consecutive month last week, despite the Bank of Korea slashing the key interest rate by 0.25 percentage points.

“Borrowers are arguably shouldering the same burden as before, as CD rates didn’t fall despite the BOK’s rate cut,” said an industry source, who declined to be named.

Meanwhile, Korea’s top financial regulator said it will choose a new index to replace the controversial CD rate.

Officials at the Financial Services Commission will meet with their counterparts at the Financial Supervisory Service, the Korea Federation of Banks and the Korea Financial Investment Association to address the problem this week, the FSC said yesterday.

“It’s a matter that requires discussion,” Joo Jae-seong, deputy governor at the FSS, said in a press briefing.

“We will choose whichever among the cost of funds index, Korea interbank offered rate and three-month bank debentures serves as the best replacement to improve the current situation.”

He added that it is regrettable the FTC felt compelled to launch a probe into the matter without first discussing it with the financial authorities, which have also been looking into CD rates.

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