Base Interest Rate Unchanged... Household Loan Interest Rate at 2.91%, Highest in 15 Months

'Weighted Average Interest Rates of Financial Institutions in April 2021'

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] Although the Bank of Korea has kept the base interest rate unchanged for a year to support economic recovery, household loan interest rates have risen again, reaching the highest level since January last year.

According to the "Weighted Average Interest Rates of Financial Institutions in April 2021" announced by the Bank of Korea on the 28th, the household loan interest rate at banks last month was 2.91%, up 3bp (1bp=0.01 percentage point) from the previous month. This marks the second consecutive month of increase. The interest rate level is the highest since January last year (2.95%).

Household loan interest rates rose for five consecutive months from September last year (2.59%), then seemed to slightly decline in February this year (2.81%), but showed consecutive increases again in March and April.

Household loan interest rates saw general unsecured loan rates (3.65%) decrease by 5bp and mortgage loan rates (2.73%) maintain the previous month's level as short-term benchmark interest rates fell. However, guarantee loan rates rose 6bp to 2.73%, and group loan rates increased 18bp to 3.25%. Additionally, some banks began handling high-interest loans, resulting in an overall upward trend.

Song Jaechang, head of the Financial Statistics Team at the Bank of Korea's Economic Statistics Bureau, explained, "High-interest loans such as 햇살론 (Haetsal Loan) have increased at some banks, and since 햇살론 is guaranteed by the National Happiness Fund, the guarantee loan interest rate rose accordingly." He also pointed out that an increase in cases where loans for moving expenses and interim payments were taken out at high-interest business sites such as apartments or commercial buildings contributed to the rise in household loan interest rates.

Meanwhile, the interest rate on savings deposits at deposit banks last month was 0.84%, down 2bp from the previous month (0.86%). Loan interest rates fell 3bp from 2.77% to 2.74%. As a result, the spread between loan interest rates and savings deposit interest rates narrowed by 1bp to 1.90 percentage points compared to the previous month.

Deposit interest rates declined as short-term market interest rates fell, with pure savings deposit rates (0.82%) dropping 2bp mainly in time deposits, and market-type financial products (0.94%) decreasing by 1bp. Among market-type financial products, financial bonds rose 1bp to 0.98% due to an increase in the proportion of long-term bonds, and CDs increased 1bp to 0.87% as some banks expanded issuance.

Loan interest rates saw corporate loan rates fall 6bp from 2.74% to 2.68%, while household loan rates rose 3bp from 2.88% to 2.91%. Consequently, the overall average loan interest rate decreased 3bp from the previous month to 2.74%.

Corporate loan interest rates dropped 8bp for large corporations and 6bp for small and medium enterprises. Short-term benchmark interest rates generally declined, with large corporations increasing the proportion of short-term loans, and some banks expanding low-interest loans for facility funds to SMEs.

On a balance basis, both deposit (-1bp) and loan (-1bp) interest rates decreased.

For non-bank financial institutions, deposit interest rates rose except for mutual savings banks (-11bp), while loan interest rates fell except for mutual savings banks (+26bp). In mutual savings banks, the proportion of high-interest household loans expanded, causing an increase compared to the previous month.

Deposit interest rates fell 11bp from the previous month due to interest rate cuts following an increase in new inflows at some savings banks. Loan interest rates rose 26bp from the previous month due to the increased proportion of relatively high-interest household loans.

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