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lending rates-class action suit

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(Globalpost/GlobalPost)

SEOUL, March 20 (Yonhap) -- A South Korean consumer advocacy group said Wednesday it plans to lodge a class action suit against local banks over their practice of imposing unduly high spreads on lending rates.

The Financial Consumer Agency said it will seek to accept cases of financial damage caused by banks' higher lending rates and to file a class action suit as local banks unduly charged higher spreads on lending.

The move came one day after prosecutors raided the headquarters of Korea Exchange Bank (KEB) to investigate allegations that it deliberately charged higher spreads on lending rates for smaller firms. KEB's move is estimated to have generated profits worth more than 18 billion won (US$16.1 million).

Usually, spreads are calculated based on borrowers' creditworthiness and the value of collateral, but KEB is suspected of randomly hiking the spreads between 2006 and 2012.

The advocacy agency said that other banks might have engaged in such similar practices, calling for authorities to expand the investigation into other banks.

It added that a combined profit from unduly charged spreads might have amounted to more than 5 trillion won for the past 10 years.

The spread charged on banks' household lending rate is estimated to be as high as 8 percentage points with an average of such spreads hitting 3.8 percentage points, industry data showed.

The central bank's key rate stood at 2.75 percent in March and the average rate for banks' new loans to households and firms stood at 5 percent in January.

If the probe is to be expanded, Korean banks will inevitably face further setbacks in a situation where they suffer from squeezed profit margins amid the central bank's easing cycle and the economic slowdown.

Korean banks' profits are mostly generated from interest income as the portion of non-interest income is marginal.

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http://www.globalpost.com/dispatch/news/yonhap-news-agency/130320/lending-rates-class-action-suit