Did the New Loan-to-Value Ratio Regulation Have an Impact? ... Household Loan Interest Rates Slightly Rebound in December

[Asia Economy Reporter Kim Eunbyeol] Household loan interest rates, which had been on a downward trend, slightly rebounded in December. However, mortgage loan interest rates remained at historically low levels.

According to the "Weighted Average Interest Rates of Financial Institutions in December 2019" announced by the Bank of Korea on the 30th, the household loan interest rate at banks last month rose by 2 basis points (1bp=0.01 percentage points) from the previous month to an annual rate of 2.98%.

A Bank of Korea official stated, "The new COFIX rate increased by 3bp, and the execution of high-interest interim payment loans that had already been approved contributed to the rise in household loan interest rates. Additionally, due to regulations such as the new loan-to-deposit ratio, the risk weight of household loans increased, leading banks to compete less aggressively on interest rate cuts."

However, the mortgage loan interest rate at banks remained at 2.45% annually, the same level as the record low rate in November. This is the lowest since the Bank of Korea began compiling statistics in September 2001.

Interest rates on small loans under 5 million won (4.58%) rose by 2bp, while general unsecured loans (3.87%) fell by 3bp. Group loan interest rates (2.98%) dropped significantly by 12bp. Group loans have a relatively small share of household loans, so their fluctuations tend to be larger. Although the proportion of mortgage loans within household loans remained around 40-50%, it reportedly decreased compared to the previous month.

As banks expanded the proportion of high-interest loans, corporate loan interest rates (3.36%) increased by 7bp. Among these, large corporate loan interest rates rose by 12bp to 3.17%. Interest rates on small and medium-sized enterprise loans also increased by 5bp to 3.50%.

The average loan interest rate across household, corporate, public, and other sectors combined at banks recorded 3.22%, up 4bp. This is a rebound from last month's record low loan interest rate of 3.18%.

Deposit interest rates declined. The average interest rate on savings deposits at banks fell by 2bp to 1.60% compared to the previous month. Time deposit rates decreased from 1.62% to 1.59%, and market-linked financial products (1.64%) also dropped by 1bp.

Deposit interest rates at secondary financial institutions all fell, while loan interest rates rose except for mutual savings banks (-31bp). A Bank of Korea official explained, "As the proportion of household loans decreased, loan interest rates at mutual savings banks fell from 10.05% to 9.74%."

This content was produced with the assistance of AI translation services.