Loan Interest Rates Soar While Deposit Rates Barely Rise... Increasing Interest Burden (Comprehensive)

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 hike, 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, the interest rates for general unsecured loans and mortgage loans in July 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 increased over the past year by 0.3 to 0.97 percentage points.

On the other hand, the interest rates for time deposits and installment savings were 0.91% and 1.14%, respectively, rising only 0.02 percentage points from the previous month. 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 steep rise in loan interest rates, which 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 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 (loan period over 5 years, apartment, credit grade 1) of 2.65?4.15% will increase to 2.80?4.30%. The preferential rate on COFIX variable-rate jeonse loans was also cut by 0.15 percentage points, raising the rate from 2.64?3.84% to 2.79?3.99%.

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 from 0.6% to 0.3%. The preferential rate for the 'salary/pension transfer' category also decreased by 0.1 percentage points from 0.2% to 0.1%. Discounts on interest rates for credit card usage (0.10%) and installment savings or subscription savings deposits (0.10%) were eliminated.

Deposit Rates Increased but Loan Rates Rose Faster

With the base interest rate rising from 0.5% to 0.75%, deposit interest rates have also been trending upward recently. Internet-only bank K Bank proactively raised the interest rate on its 'Code K Time Deposit' by 0.2 percentage points on the 28th.

Major commercial banks generally raised rates by about 0.1 to 0.3 percentage points. Shinhan Bank was the first among the top five banks to increase basic interest rates on savings and installment savings products by 0.2 to 0.3 percentage points on the 30th. 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 are growing voices that loan interest rates will be raised further by a larger margin. This is because, following the reflection of the COFIX increase, banks can also adjust the additional margin rates citing household loan management and total volume regulations. There is also a possibility of further base rate hikes within the year.

A financial industry official explained, "Deposit rates have not risen much due to the large liquidity, while loan rates have increased due to the government's strong issuance of national bonds and tightening of loans."

As interest rates rise, the interest burden on borrowers is expected to expand. About 70% of loans executed by banks are variable-rate loans. According to data submitted by the Bank of Korea to the National Assembly, if personal loan rates such as unsecured loans and mortgage loans rise by 1%, household loan interest increases by 11.8 trillion won. The interest burden on self-employed individuals has increased by 5.2 trillion won due to the impact of COVID-19. Considering that this data is based on statistics from the end of last year, the actual interest burden is likely to be even greater.

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