Contents

The Effects of Lowering the Statutory Maximum Interest Rate on Non-bank Credit Loans

Mee Roo, Kim

  • 0 WEB OF SCIENCE
  • 0 SCOPUS
  • 3008 ITEM VIEW
  • 1262 DOWNLOAD
Abstract

This paper analyzes the effects of the cut in the legal maximum interest rate (from 27.4% to 24%) that occurred in February of 2018 on loan interest rates, the default rates, and the loan approval rate of borrowers in the non-banking sector. We use the difference-in-difference identification strategy to estimate the effect of the cut in the legal maximum interest rate using micro-level data from a major creditrating company. The legal maximum rate cut significantly lowers the loan interest rate and default rate of low-credit borrowers (i.e., highcredit- risk borrowers) in the non-banking sector. However, this effect is limited to borrowers who have not been excluded from the market despite the legal maximum interest rate cut. The loan approval rate of low-credit borrowers decreased significantly after the legal maximum interest rate cut. Meanwhile, the loan approval rate of high-credit and medium-credit (i.e., low credit risk and medium credit risk) borrowers increased. This implies that financial institutions in the non-banking sector should reduce the loan supply to low-credit borrowers who are no longer profitable while increasing the loan supply to high- and medium-credit borrowers.

Issue Date
2022-08
Publisher
Korea Development Institute
DOI
https://doi.org/10.23895/kdijep.2022.44.3.1
Journal Title
KDI Journal of Economic Policy
Start Page
1
End Page
26
ISBN
KDI Journal of Economic Policy, vol. 44, no. 3, pp. 1-26
Language
eng
Files in This Item:

Click the button and follow the links to connect to the full text. (KDI CL members only)

qrcode

Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.

상단으로 이동