June Bank Deposit Interest Rates Enter 0% Range for the First Time Ever... All-Time Low

Bank of Korea 'Weighted Average Interest Rate of Financial Institutions in June'

[Asia Economy Reporter Eunbyeol Kim] Last month, bank deposit interest rates hit a new low again, falling below 0% for the first time ever. Loan interest rates also declined, influenced by the drop in household loan rates.

According to the "Weighted Average Interest Rates of Financial Institutions in June" released by the Bank of Korea on the 31st, the average interest rate on savings deposits at deposit banks (based on new contracts) last month was 0.89% per annum, down 18 basis points (1bp = 0.01 percentage points) from the previous month. This marks the seventh consecutive month of decline since December last year, setting a new record low since the related statistics began to be compiled. This is interpreted as being influenced by the market interest rate decline due to the Bank of Korea's base rate cuts.

The pure savings deposit interest rate fell 19bp to 0.88%, and the interest rate on market-type financial products including CDs also dropped 13bp to 0.92%.

Loan interest rates fell 10bp from the previous month to 2.72% per annum. Corporate loans decreased by 8bp to 2.75%, and household loans dropped 14bp to 2.67%.

For corporate loans, large corporations (-21bp) saw loan interest rates fall to 2.54% due to the decline in market interest rates and the disappearance of the effect of high-interest loans taken out the previous month, but small and medium enterprises (+2bp) experienced an increase to 2.90% as the proportion of low-interest loans decreased. The proportion of loans with interest rates below 2% among SME loans showed a downward trend, falling from 17.6% in April to 15.4% in May and 13.6% in June.

Household loans saw interest rates fall across the board: general credit loans (-40bp), guaranteed loans (-17bp), and mortgage loans (-3bp), all influenced by the decline in benchmark interest rates. Even for general credit loans, which typically have higher interest rates, the decline widened as the proportion of high-quality borrowers increased.

Song Jae-chang, head of the Bank of Korea's Financial Statistics Team, explained, "Recently, housing transactions have increased, and typically, borrowers related to housing transactions tend to be high-credit-quality borrowers, so credit loan interest rates tend to decrease."

Accordingly, the spread between loan interest rates and savings deposit interest rates widened by 8bp from the previous month to 1.83 percentage points. On a balance basis, both deposit (-7bp) and loan (-9bp) interest rates declined.

For non-bank financial institutions, deposit interest rates all fell, and loan interest rates declined except for Saemaeul Geumgo (+6bp). Team leader Song stated, "The loan interest rate at Saemaeul Geumgo rose compared to the previous month due to an increased proportion of corporate fund loans, which have relatively high interest rates."

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