[0.5% Interest Rate Era] Commercial Banks Also Announce Consecutive Cuts in Deposit and Loan Rates

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[Asia Economy Reporter Kim Hyo-jin] Following the Bank of Korea's decision on the 28th to lower the base interest rate to an annual 0.5%, it is expected that the deposit and loan interest rates of commercial banks will also be affected one after another.

According to the financial sector, commercial banks are currently reviewing adjustments to the interest rates of major deposit and savings products.

A representative from a commercial bank said, "Due to previous 'big cuts' and other factors, deposit and savings interest rates are already at historically low levels, but with this recent base rate cut by the Bank of Korea, further adjustments are inevitable." There are also expectations that additional cuts may be implemented as early as next week.

The major deposit and savings products of commercial banks are already below the basic interest rate (based on a 1-year maturity) of 1%.

KB Kookmin Bank's 'Kookmin Super Time Deposit' offers 0.9%, Shinhan Bank's 'Shinhan S Dream Time Deposit' offers 0.9%, Hana Bank's 'Hana OneQ Time Deposit' offers 0.8%, and NH Nonghyup Bank's 'NH Forty Deposit' offers 0.95%.

According to the Bank of Korea, last month, the savings deposit interest rate in the banking sector dropped by 0.07 percentage points to an annual 1.20%, the lowest since statistics began. The loan-deposit margin (the difference between loan interest rates and savings deposit interest rates) based on new transactions was 1.60 percentage points, down by 0.04 percentage points. This means that depositing money in banks is essentially a break-even, leading to expectations that the popularity of deposit and savings products will continue to decline.

Loan interest rates are also expected to be adjusted. Major loan products such as mortgage loans are divided into hybrid (5-year fixed, then variable) and variable types. The COFIX (Cost of Funds Index), which is based on outstanding balances and serves as the benchmark for variable mortgage loan interest rates, reflects deposit and savings interest rates.

COFIX is calculated based on the costs (interest rates) paid by eight domestic banks when raising funds. When bank deposit and savings interest rates fall, variable mortgage loan interest rates also decrease. Since variable mortgage loan interest rates have already dropped to historically low levels, they are expected to decline further following the reduction in deposit and savings interest rates.

The reduction in loan interest rates in the banking sector is already progressing rapidly. This is interpreted as a result of the government's large-scale financial support in response to the COVID-19 pandemic and the easing of soundness regulations.

According to the Korea Federation of Banks, the average interest rate for personal business credit loans across all grades at the five major commercial banks?Shinhan, KB Kookmin, Hana, Woori, and NH Nonghyup?was 4.07% last month. It slightly increased from 4.33% in January to 4.35% in February but has noticeably decreased since March (4.27%).

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

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