2% Loan Interest Rates Disappear... Debt Investment and Yeongkkeul Borrowers Face Increased Interest Burden

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[Asia Economy Reporter Song Seung-seop] The 2% range loan interest rates have disappeared from major commercial banks, and it is understood that the rates are on the verge of entering the 5% range. This is due to the Bank of Korea raising the base interest rate and financial authorities' total loan volume regulations, which led commercial banks to reduce preferential interest rates or increase additional interest rates. As a result of the government's household debt management policy, the interest burden on the debt investment (debt-financed investment) and Eonggeul (soul-pulling investment) groups is expected to increase.

According to the financial sector on the 17th, the variable interest rates for mortgage loans applied by KB Kookmin, Shinhan, Hana, and Woori Banks for next week are in the range of 3.031% to 4.67% per annum. Compared to the end of August, when rates were between 2.62% and 4.19%, the rates have increased by more than 0.4 percentage points in less than two months. This reflects the incorporation of the new COFIX rate as of September.

The mixed (fixed) mortgage loan interest rates rose to 3.14% to 4.95% per annum. At the end of August, they were around 2.92% to 4.42%. The upper limit increased by 0.53 percentage points, approaching the 5% range. The one-year maturity credit loan interest rates for grade 1 borrowers are 3.18% to 4.43%, up from 3.02% to 4.17% at the end of August, with the lower and upper bounds rising by 0.16 and 0.26 percentage points, respectively. As interest rates for major loan products rose simultaneously, the 2% range rates have disappeared.

The sharp increase in interest rates was driven by the COFIX rate. COFIX refers to the cost (interest rate) domestic banks incur to raise loan funds. Deposit and loan interest rates also change according to COFIX. COFIX surged from 1.02% in August to 1.16% in September, a jump of 0.14 percentage points. This is the largest increase in 3 years and 10 months since December 2017, when it rose by 0.15 percentage points.

The reduction of preferential interest rates or increase in additional interest rates by banks also had a significant impact. Financial authorities plan to suppress household debt in the first-tier financial sector to the 5-6% range. For commercial banks, raising interest rates is inevitable to curb the growth trend without stopping loans by the end of the year.

Loan interest rates are expected to rise even faster going forward. The Bank of Korea is actively considering raising the base interest rate. It is widely expected that the Bank of Korea will hold a Monetary Policy Committee meeting next month and raise the base interest rate by 0.25 percentage points.

Bank of Korea Governor Lee Ju-yeol also stated at the National Assembly audit held on the 15th, "According to our economic forecast, we expect that raising the base interest rate in November will not cause significant difficulties."

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