Due to Household Loan Regulation Pressure... Loan Interest Rates Up About 0.5%p in 3 Months

Due to Regulations, the Increase is Four Times the Benchmark Interest Rate

[Image source=Yonhap News]

[Asia Economy Reporter Ki Ha-young] The loan interest rates of major commercial banks have risen by nearly 0.5 percentage points in just three months. This figure is four times higher than the COFIX (Cost of Funds Index), which banks use as a benchmark for loan interest rates. It is interpreted that banks, under pressure from the government to regulate household loans, are raising loan interest rates more sharply than market rates by adjusting additional and preferential interest rates.

According to the financial sector on the 5th, as of the 3rd, the variable interest rates for new mortgage loans linked to COFIX at KB Kookmin, Shinhan, Hana, and Woori Banks were recorded at 2.80?4.30% per annum. Compared to about three months ago at the end of May (2.35?3.88%), the lower and upper bounds increased by 0.45 percentage points and 0.42 percentage points, respectively.

The variable interest rates for mortgage loans following the new balance COFIX, not the new COFIX, also rose during the same period from 2.284?4.01% to 2.673?4.38%. The minimum and maximum interest rates increased by 0.389 percentage points and 0.37 percentage points, respectively.

For unsecured loans, as of the 3rd, interest rates of 3.00?4.05% (grade 1, 1 year) are applied. Both the upper and lower bounds rose by about 0.43 percentage points compared to the end of May (2.564?3.62%).

On the other hand, over the past three months, the new COFIX increased by only 0.13 percentage points, and the new balance COFIX showed no change. The rise in variable mortgage loan interest rates at commercial banks is thus four times the increase in the benchmark interest rate (COFIX). For variable mortgage loan interest rates, COFIX is mainly used as the benchmark rate. COFIX is an index that shows how much cost (interest rate) eight domestic banks incurred to raise funds for loans. It reflects changes in interest rates of deposit products such as actual savings, time deposits, and bank bonds handled by banks.

The situation is similar for unsecured loans. Unsecured loan interest rates mainly use short-term financial bond rates such as 6-month and 1-year bank bonds as benchmarks. According to the Korea Financial Investment Association Bond Information Center, the 1-year bank bond (AAA, unsecured) interest rate, which is most commonly used as the benchmark for unsecured loans, rose from 0.935% at the end of May to 1.250% as of the 3rd of this month, an increase of about 0.315 percentage points in three months. During this period, the four major banks raised unsecured loan interest rates by 0.43%, which is more than 0.1 percentage points higher than the benchmark rate.

This phenomenon is interpreted as being due to an increase in additional interest rates caused by the financial authorities' total loan volume management. Preferential interest rates applied based on transaction performance, etc., are also disappearing. Since the new Financial Services Commission Chairman Go Seung-beom has announced stronger household loan regulations in the future, the pace of interest rate hikes is expected to accelerate further. Immediately, Shinhan Bank decided to raise the jeonse (key money deposit) loan interest rates by 0.2 percentage points starting from the 6th. By increasing the additional interest rate by 0.2 percentage points, considering the jeonse loan interest rates as of the 3rd (2.77%?3.87%), the maximum interest rate will exceed 4% from next week.

For the same reason, KB Kookmin Bank lowered the preferential interest rate by 0.15 percentage points on the variable interest rate for mortgage loans linked to the new COFIX (6-month cycle variable) on the 3rd. Accordingly, the current mortgage loan interest rates (loan period over 5 years, apartment, credit grade 1) ranging from 2.65% to 4.15% were adjusted upward to 2.80% to 4.30%. The preferential interest rate on the new COFIX variable interest rate for jeonse loans was also reduced by 0.15 percentage points.

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