May Loan Interest Rates Rise by 0.02%p... "Impact of Policy Fund Loan Reduction"

Banking Sector Savings Deposit Interest Rate Records 1.07% Per Annum

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] Last month, the average loan interest rate in the banking sector showed a slight increase. The Bank of Korea analyzed that this was due to the base effect combined with the large expansion of policy fund loans in response to the novel coronavirus infection (COVID-19).

According to the weighted average interest rates of financial institutions compiled by the Bank of Korea for May 2020, the loan interest rate in the banking sector based on new loan amounts last month was 2.82% per annum, up 0.02 percentage points from the previous month.

Corporate loans recorded an annual rate of 2.83%, rising by 0.06 percentage points compared to the previous month. The Bank of Korea explained, "There was an increase in high-interest loans taken by some large corporations," and "the proportion of low-interest loans to small and medium enterprises (SMEs) decreased." In fact, the proportion of SME loans below 2% fell by 2.2 percentage points from 17.6% in April to 15.4% last month.

On the other hand, household loan interest rates recorded 2.81% per annum, down 0.08 percentage points from the previous month. A Bank of Korea official stated, "Both guarantee loans (down 0.1 percentage points) and mortgage loans (down 0.06 percentage points) decreased due to the decline in benchmark interest rates," adding, "Mortgage loan interest rates are relatively inelastic to rate changes, so the decline was limited."

The interest rate on savings deposits in the banking sector fell by 0.13 percentage points to 1.07% per annum.

Meanwhile, the interest rate margin based on new loan amounts, that is, the difference between loan interest rates and savings deposit interest rates, narrowed by 0.02 percentage points to 2.12 percentage points.

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