Korea Development Bank on Monday introduced a special loan product with an average annual interest of 3.95 percent for small and medium-sized companies, a year after creating a sensation with a money market deposit account that offers a generous interest of 3.5 percent.

KDB chairman Kang Man-soo told reporters that the low-interest loans for small firms worth a total of 3 trillion won ($2.7 billion) comes in celebration of Korea’s recent credit rating upgrade by Moody’s and Fitch to a level above Japan and China.

The interest rates can vary from company to company based on their credit ratings, and could go down to as low as 3.45 percent a year.

“We decided to offer the special loans using the money we will be saving in procuring foreign currency as the credit ratings of Korea as well as KDB have been raised,” Kang said in a press conference.

“It will be the first time for ordinary small and medium-sized companies to get loans with interests in the 3-percent range.”

Moody’s recently assigned an Aa3 rating to KDB, five levels higher than that of Citibank or Bank of America.

Regarding a possible controversy over loss margin, Kang said KDB is expected to save about 110 billion won over the next three years in costs for securing foreign currency funds thanks to the credit rating upgrade.

“Even if we lower the loan interest to an average of 3.95 percent, the costs will be around 66.5 billion won, so we will be able to cover them,” he said.

The term for the special low-interest loans has been set at two years.

By Kim So-hyun (sophie@heraldcorp.com)