Bank loan rates to exclude legal costs from July under revised Banking Act
From July 1, banks in Korea cannot include statutory contributions and other legal costs in loan interest rates. The change reduces the room for cost pass-through in additional spreads. It is not a central bank rate cut, so the effect will differ by bank, product and borrower. A 0.10 percentage point decline saves about KRW 100,000 a year on a KRW 100 millio
Bank loan pricing in Korea changes on July 1, 2026. Banks will no longer be allowed to add statutory contributions and other legal costs to borrowers' interest rates. The measure does not cut the Bank of Korea base rate, but it narrows the cost items that can be passed into loan spreads.
What changes
Loan rates combine funding costs, credit risk, operating costs, target margins and discounts. Legal costs borne by banks had been able to enter some pricing formulas. Under the revised Banking Act, that channel closes for rate calculations applied after July 1.
The numbers
The rule starts two days after June 29. The effect will vary by bank, product and borrower. If a KRW 100 million loan falls by 0.10 percentage point, annual interest drops by about KRW 100,000. On a KRW 500 million mortgage, the same move saves about KRW 500,000 a year.
Market impact
Borrowers taking new mortgages, credit loans, jeonse loans or business loans should check the final rate and spread breakdown. Banks face stronger pressure to explain pricing clearly, while second-half loan competition may focus on discounts and cleaner spread formulas.
Key points
- From July 1, banks in Korea cannot include statutory contributions and other legal costs in loan interest rates. The change reduces the room for cost pass-through in additional spreads. It is not a central bank rate cut, so the effect will differ by bank, product and borrower. A 0.10 percentage point decline saves about KRW 100,000 a year on a KRW 100 millio
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FAQ
When does the ban on reflecting legal costs begin?
It begins on July 1, 2026, when the revised Banking Act takes effect.
Will every borrower see the same rate cut?
No. The change removes a cost item from pricing formulas, so the impact depends on the bank, product and borrower profile.
What should borrowers check?
They should review the final applied rate, spread components, exclusion of legal costs and any discount conditions when taking or repricing a loan.
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