'Big Cut' Effect and Deregulation... Market Banks' Loan Interest Rates Plummet (Comprehensive)

Interest Rates on Loans for Sole Proprietors Begin to Fall
Loan Barriers Expected to Lower Further

[Asia Economy Reporter Kim Hyo-jin] Loan interest rates at major commercial banks are sharply falling. This is interpreted as the result of a combination of the government's large-scale financial support in response to the novel coronavirus infection (COVID-19), the relaxation of soundness regulations, and the Bank of Korea's base rate 'big cut' (large-scale interest rate reduction). Based on this trend, commercial banks have stated their intention to lower the loan threshold as much as possible for vulnerable groups in the future.

According to the interest rate and fee comparison disclosure data from the Korea Federation of Banks on the 22nd, the average interest rate for all grades of individual business owner credit loans at the five major commercial banks?Shinhan, KB Kookmin, Hana, Woori, and NH Nonghyup?was recorded at 4.07% this month. Individual business owner loans are mainly used by self-employed, small business owners, and small-scale corporations. The rate slightly increased from 4.33% in January to 4.35% in February but has noticeably decreased since March (4.27%).

The monthly interest rate figures compiled by the Korea Federation of Banks are based on loans handled during the three months prior to the respective month. This trend aligns with the financial and monetary authorities' measures in response to the spread of COVID-19, including the base rate cut to 0.75% and the activation of large-scale financial support policies covering both public and private sectors.

It is also analyzed that the temporary relaxation of soundness and liquidity regulations, such as banks' Liquidity Coverage Ratio (LCR) and loan-to-deposit ratio, has increased the banking sector's funding supply capacity by nearly 260 trillion won, which has had an impact.

The average interest rate for small and medium-sized enterprise (SME) credit loans at these commercial banks also slightly rose from 4.56% in January to 4.59% in February, then decreased to 4.51% in March and further to 4.07% this month. The average interest rate for general household credit loans was reduced from 3.41% in January to 3.37% in February, 3.24% in March, and 3.03% in April.

An official from a commercial bank explained, "For the time being, all credit will likely have the character of COVID-19 support," adding, "Demand for general loans, which are not specially named support products related to COVID-19, is expected to continue increasing, and conditions are being created to ensure sufficient supply as much as possible."

According to the Bank of Korea's financial institution loan behavior survey results announced the day before, heads of credit operations at commercial banks responded that they would further ease loan attitudes when handling SME and general household loans in the second quarter. This means lowering various screening conditions related to loans or increasing loan limits.

The loan attitude index (forecast) for SME loans, quantified from the survey results, was 20 in the second quarter, maintaining a positive (+) trend for six consecutive quarters since the first quarter of last year (17). An index greater than 0 indicates easing of attitudes, while less than 0 indicates tightening. The loan attitude index for general household loans was also 13, indicating easing attitudes.

However, credit officers forecast a significant increase in credit risk vigilance for SMEs and others due to worsening business conditions caused by the sluggish real economy.

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