"Loans with Annual Interest Rates in the 4% Range Decrease"... Is Lowering Bank Entry Bar Effective?

Banks Apply Preferential Interest Rates Amid Household Loan Contraction

Lower Loan Rates and Increase Limits

Loans with 3% Interest Rise, 4% Interest Loans Decline

[Image source=Yonhap News]

[Asia Economy Reporter Shim Nayoung] As household loan demand retreats, the emergency measures introduced by commercial banks are gradually showing effects. Since the beginning of this year, banks have stimulated loan demand by lowering interest rates and increasing loan limits. Above all, the main reason for the contraction in household loans was the soaring interest rates. As banks emphasized preferential interest rates, the rapidly increasing loans at around 4% annual interest seem to be calming down.

According to the Bank of Korea's "Proportion of Household Loans by Interest Rate Level at Deposit Banks" on the 2nd, the proportion of loans newly taken out at banks with an annual interest rate in the 4% range was 26.7% in March. In February, the proportion had risen to 31.5%, but the upward trend has now declined.

The Rapid Rise in 4% Range Loans Has Been Curbed

A representative from a commercial bank explained, "Loans in the 4% range had noticeably increased since September last year. However, from March, banks applied preferential interest rates to mortgage loans and jeonse (key money deposit) loans, which somewhat eased the interest burden." For reference, as the proportion of 4% range loans decreased, the proportion of 3% range loans slightly increased (February 46.1% → March 48.2%).

Banks began implementing interest rate reduction policies in earnest from March. At that time, KB Kookmin Bank started by lowering the variable mortgage loan interest rate by 0.2 percentage points and the mixed interest rate by 0.1 percentage points. Woori Bank also reduced interest rates by 0.2 percentage points on apartment loans and real estate loans secured by residential officetels, as well as on Woori Jeonse Loan and Woori WON Housing Loan, under its "Special Preferential Interest Rate for New Loans" policy. Shinhan Bank lowered the interest rates on all jeonse loan products by 0.1 percentage points.

This trend has continued throughout the first half of this year. KB Kookmin Bank further reduced mortgage loan interest rates (up to 0.45 percentage points) and jeonse loan interest rates (up to 0.55 percentage points) starting in April and has decided to extend this policy until the end of this month.

Thanks to these efforts, the decline in household loans is also gradually easing. The outstanding household loans of the five major commercial banks (KB, Shinhan, Hana, Woori, NH Nonghyup) stood at 702.1983 trillion won as of April 28. This is a decrease of 995.4 billion won compared to the end of March. Although it has been declining for four consecutive months, the decrease is somewhat less severe compared to January (-1.3634 trillion won), February (-1.7522 trillion won), and March (-2.7436 trillion won).

Introduction of 10-Year Maturity Personal Loans and 40-Year Maturity Mortgage Loans

Banks have also introduced products with extended repayment periods to increase household loans. KB Kookmin Bank extended the loan period (maturity) of installment repayment personal loans from a maximum of 5 years to 10 years starting from the 29th. Mortgage loans with a 40-year maturity are also being introduced one after another. Hana Bank extended the maximum maturity of its mortgage loan products from 35 years to 40 years last month, and NH Nonghyup Bank and Shinhan Bank plan to launch products adjusted to 40 years soon.

A representative from a commercial bank said, "Using 10-year maturity personal loans and 40-year maturity mortgage loan products can reduce monthly and annual repayment burdens even under the Debt Service Ratio (DSR) regulations, allowing for an increase in the total loan limit. However, since the overall loan period is extended, the total interest amount may increase."

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