Bank Mortgage Fixed Interest Rate Maintained at 50%... Impact of Surge in Jeonse Loans

by Lee Kwangho

Published 18 Apr.2021 08:59(KST)

Loan counter of a bank (Photo by Yonhap News)

[Asia Economy Reporter Kwangho Lee] Financial authorities have decided to maintain the proportion of fixed-rate loans in the total outstanding mortgage loans at banks at around half. This is interpreted as an attempt to slow down the pace as the number of jeonse deposit loans with variable interest rates has surged.

According to financial authorities on the 18th, the Financial Supervisory Service has reportedly initiated administrative guidance on detailed measures to promote the improvement of bank loan structures for the implementation of household debt management plans.

This year, the target ratio for fixed-rate loans and non-grace period installment repayment loans in the banking sector remain at 50% and 57.5%, respectively, the same as a year ago.

The target ratio for fixed-rate loans has steadily increased from 47.5% in 2018, 48.0% in 2019, to 50.0% in 2020.

The recognition criteria for non-grace period installment repayment loans include the installment repayment portion of jeonse loans. In the case of jeonse loans, if more than 5% of the principal is repaid in installments over two years, the outstanding balance of the loan is recognized as an installment repayment loan.

The reason financial authorities decided to maintain the target ratios for fixed-rate and installment repayment loans at banks at last year's levels is due to the rapid increase in jeonse deposit loans.

As of the end of March, the outstanding balance of jeonse loans at the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?was 110.8381 trillion won, an increase of 2.0714 trillion won from the previous month (108.7667 trillion won). This marks a two-month consecutive increase of over 2 trillion won.