Deposit rates barely budge... Fierce 'Base Rate Hike' backlash only on loan interest rates

Credit Loan and Mortgage Rates Rise 0.3~0.97% Over One Year
Regular Savings and Time Deposits Increase by 0.1% or Even Decrease
Deposit Rates Rise but Loan Rates Likely to Increase More
Criticism of 'Easy Profit' Operations Through Net Interest Margin

[Asia Economy Reporter Song Seung-seop] Domestic banks have sharply raised interest rates on major loan products while either lowering or only slightly increasing deposit interest rates. Although savings and time deposit rates have risen following the base interest rate hikes, they still remain around 1%, and loan interest rates have much more room to increase. Critics argue that banks have not moved away from a 'sitting on the ground and swimming' business model that exploits the interest margin gap to charge consumers exorbitant interest.

According to the Bank of Korea and financial authorities on the 3rd, in July, the interest rates for general unsecured loans and mortgage loans recorded 3.89% and 2.81%, respectively, based on new loan amounts. The unsecured loan rate rose by 0.14 percentage points from the previous month, and the mortgage loan rate increased by 0.07 percentage points. They have steadily risen over the past year, increasing by 0.3 to 0.97 percentage points.

On the other hand, interest rates for time deposits and installment savings were only up by 0.02 percentage points each from the previous month, at 0.91% and 1.14%, respectively. Compared to July last year, time deposit rates increased by only 0.11% over the year, while installment savings actually decreased by 0.02% from 1.16%. Notably, installment savings barely escaped the lowest level since 1996, rising slightly from 1.12% in June. This contrasts sharply with the steeply rising loan interest rates that have recovered to pre-COVID-19 levels.

The trend of interest rate hikes continues in line with the base rate increases. KB Kookmin Bank lowered the preferential interest rate on its variable-rate mortgage loans (6-month cycle) based on the new COFIX from today by 0.15 percentage points. Reducing the preferential rate effectively raises the loan interest rate for borrowers. The current mortgage loan interest rate range (for loans over 5 years, apartments, credit grade 1) of 2.65?4.15% will increase to 2.80?4.30%. The preferential COFIX variable rate on jeonse deposit loans was also cut by 0.15 percentage points, raising the rate from 2.64?3.84% to 2.79?3.99%.

Interest Rate Hikes Continue... Deposit Rates Rise but Loan Rates Increase Faster

Woori Bank also reduced the maximum preferential interest rate limits by 0.3 percentage points for its mortgage loan products 'Woori Apartment Loan' and 'Woori Real Estate Loan.' The Woori Apartment Loan's preferential rate dropped from 0.8% to 0.5%, and the Woori Real Estate Loan's from 0.6% to 0.3%. The preferential rate for 'salary/pension transfer' was also cut from 0.2% to 0.1%, a 0.1 percentage point decrease. Discounts on credit card usage (0.10%) and installment savings or subscription savings payments (0.10%) were eliminated.

With the base interest rate rising from 0.5% to 0.75%, deposit interest rates have recently been on the rise. Generally, they have increased by 0.1 to 0.3 percentage points. KB Kookmin Bank raised time deposit rates by 0.15 to 0.40 percentage points depending on the product. Hana Bank increased rates by 0.1 to 0.3 percentage points, while Woori Bank and NH Nonghyup Bank raised theirs by 0.1 to 0.3 and 0.05 to 0.35 percentage points, respectively.

Nevertheless, there is a strong expectation that loan interest rates will be raised further by a larger margin. This is because the rise in COFIX has been reflected, and banks may adjust the additional margin rates citing household loan management and total volume regulations. There is also room for further base rate hikes within the year.

A financial industry official explained, "Deposit rates have not risen much due to the large liquidity," adding, "Government bond issuance and a strong stance on tightening loans have caused loan interest rates to increase."

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