Savings Banks' Credit Score Inversion…Share of Rate-Inverted Products at 54%

The phenomenon of 'rate inversion' at savings banks, where higher interest rates are applied to individuals with higher credit scores, has expanded over the past 10 months. An analysis of data from the Savings Banks Central Association on the 22nd revealed that the proportion of products where the average rate for the upper credit score bracket was higher than the immediately lower bracket rose from 42.4% in December last year to 54.3% in August, an increase of 11.9 percentage points (p).

Savings banks determine interest rates by comprehensively evaluating borrowers' income, occupation, and debt repayment ability using their own internal credit scoring systems (CSS). Even if a credit score exceeds 900, a relatively higher interest rate may be applied if the borrower has numerous loans from other financial institutions or risk factors are identified during internal review.

A representative case is OK Savings Bank. For OK Savings Bank's 'Women's OK Loan', the average rate for borrowers in the over-900 credit score bracket was 14.20%, which is 3.38%p higher than the 10.82% for the 801~900 bracket. Its 'Minus OK Loan' also recorded an average rate of 17.82% for the over-900 bracket, 2.33%p higher than the 15.49% for the 801~900 bracket.

However, the proportion of borrowers with scores over 900 for these two products was negligible, at 0.15% for the Women's OK Loan and 0.73% for the Minus OK Loan. An official from OK Financial Group explained, "The share of borrowers with scores over 900 is just 0.15%, so it appears to amount to only one or two cases in reality. If rates were inverted despite a sufficient number of transactions, it would be necessary to examine the issue, but these cases reflect individual borrower situations."