Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/265115 
Authors: 
Year of Publication: 
2022
Citation: 
[Journal:] KDI Journal of Economic Policy [ISSN:] 2586-4130 [Volume:] 44 [Issue:] 3 [Publisher:] Korea Development Institute (KDI) [Place:] Sejong [Year:] 2022 [Pages:] 1-26
Publisher: 
Korea Development Institute (KDI), Sejong
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 credit-rating company. The legal maximum rate cut significantly lowers the loan interest rate and default rate of low-credit borrowers (i.e., high-credit-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.
Subjects: 
Statutory Maximum Interest Rate
Household Loan
Market Exclusion
Non-banking Sector
JEL: 
G23
G28
G51
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-sa Logo
Document Type: 
Article

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