July Bank Household Loan Interest Rate 2.99%·Mortgage Loan 2.81%... Highest in Over 2 Years

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

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] As the Bank of Korea raised the base interest rate from 0.5% to 0.75% the day before, mortgage loan interest rates in the banking sector rose to the highest level in 2 years and 2 months. Interest rates on unsecured loans and overall household loans also recorded the highest levels in 1 year and 8 to 9 months.

This is due to the rise in benchmark interest rates such as COFIX and bank bonds ahead of the base rate hike, as well as the reduction of preferential interest rates to curb household loans. Since the base rate has been raised, the pace of loan interest rate increases is expected to accelerate further.

According to the 'Weighted Average Interest Rates of Financial Institutions' statistics announced by the Bank of Korea on the 27th, the overall household loan interest rate (weighted average, based on new contracts) of deposit banks in July was 2.99% per annum, up 0.07 percentage points from 2.92% in June. The 2.99% household loan interest rate is the highest in 1 year and 9 months since October 2019 (3.01%).

By type, mortgage loan interest rates rose 0.07 percentage points in one month to 2.81% per annum. This is the highest level in 2 years and 2 months since May 2019 (2.93%).

Unsecured loan interest rates also increased by 0.14 percentage points from 3.75% to 3.89% per annum, marking the highest point in 1 year and 8 months since November 2019 (3.90%).

The proportion of fixed interest rates among household loans increased by 0.3 percentage points in one month to 18.6%.

Song Jae-chang, head of the Financial Statistics Team at the Bank of Korea's Economic Statistics Bureau, explained the background of the household loan interest rate increase as "benchmark interest rates such as COFIX, bank bonds, and negotiable certificates of deposit (CD) rose by 0.03 to 0.11 percentage points compared to June, and banks reduced preferential interest rates and increased additional interest rates to manage household loans."

On the other hand, corporate loan interest rates (2.69% per annum) fell by 0.03 percentage points compared to June. Large corporate loan interest rates dropped by 0.08 percentage points (from 2.53% to 2.45%), while small and medium-sized enterprise loan interest rates (2.85%) remained unchanged.

The average overall loan interest rate (weighted average, based on new contracts) of deposit banks, reflecting both corporate and household loans, was 2.78%, up 0.01 percentage points from 2.77% in June.

The average interest rate on savings deposits of deposit banks also rose by 0.03 percentage points from 0.94% to 0.97% per annum. The Bank of Korea explained that this was also influenced by the rise in market interest rates. The 0.97% savings deposit interest rate is the highest in 1 year and 2 months since May 2020 (1.07%).

The difference between deposit bank loan interest rates and savings deposit interest rates, i.e., the interest margin, narrowed by 0.02 percentage points to 1.81 percentage points compared to 1.83% in June.

On a balance basis rather than new contracts, the total deposit interest rate (0.66%) rose by 0.01 percentage points, but the total loan interest rate (2.77%) remained the same as in June. The interest margin (2.11 percentage points) decreased by 0.01 percentage points.

Among non-bank financial institutions, mutual savings banks' deposit interest rates (based on new contracts of 1-year term time deposits) rose by 0.27 percentage points to 2.07% per annum. Mutual finance (1.18%), credit cooperatives (1.74%), and Saemaeul Geumgo (1.73%) also increased by 0.03, 0.02, and 0.01 percentage points respectively.

Regarding loan interest rates, Saemaeul Geumgo (3.85%, -0.05 percentage points), credit cooperatives (3.89%, -0.01 percentage points), and mutual savings banks (9.66%, -0.05 percentage points) saw decreases, while mutual finance (3.32%, +0.01 percentage points) was the only one to increase.

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