Average Interest Rate on Household Loans in Banking Sector Surpasses 4% for the First Time in 7 Years and 11 Months

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] Last month, the average interest rate on household loans in the banking sector surpassed 4% for the first time in 7 years and 11 months, reaching 4.05%.

According to the 'Weighted Average Interest Rate of Financial Institutions' statistics released by the Bank of Korea on the 31st, the household loan interest rate (weighted average, based on new loan amounts) of deposit banks in April rose by 0.07 percentage points from March to 4.05% per annum. This is the highest level since March 2014 (4.09%).

Among household loans, the mortgage loan interest rate increased by 0.06 percentage points to 3.90%. The general unsecured loan interest rate rose by 0.16 percentage points to 5.62%, marking the highest level in 7 years and 10 months since June 2014 (5.62%).

Song Jae-chang, head of the Financial Statistics Team at the Bank of Korea’s Economic Statistics Bureau, explained, "As benchmark interest rates generally rose, the interest rate on general unsecured loans increased due to the expanded proportion of low-credit borrowers. However, the increase in mortgage and guaranteed loan interest rates was limited due to preferential interest rate offerings, resulting in an overall household loan interest rate increase of 0.06 percentage points compared to the previous month."

The corporate loan interest rate (3.45% per annum) rose by 0.06 percentage points from March (3.39%), reaching the highest level since July 2019 (3.52%). The average overall loan interest rate of deposit banks (weighted average, based on new loan amounts), reflecting both corporate and household loans, was 3.57%, up 0.07 percentage points from March (3.50%).

The average interest rate on savings deposits of deposit banks also rose by 0.13 percentage points to 1.87% per annum, as market interest rates increased and market-based financial product rates rose.

The loan-to-deposit margin, which is the difference between the loan interest rate and the savings deposit interest rate based on new transaction amounts at deposit banks, narrowed by 0.06 percentage points from March (1.76%) to 1.70 percentage points. On a balance basis rather than new transaction basis, the total deposit interest rate (1.01%) rose by 0.05 percentage points, and the total loan interest rate (3.36%) increased by 0.08 percentage points. Accordingly, the loan-to-deposit margin (2.35 percentage points) expanded by 0.03 percentage points, marking the largest increase since June 2018 (2.35 percentage points).

Among financial institutions other than banks, the deposit interest rate of mutual savings banks (based on new 1-year fixed-term deposits) rose by 0.06 percentage points to 2.56% per annum, while mutual finance (2.10%), credit cooperatives (2.52%), and Saemaeul Geumgo (2.57%) also saw increases.

Regarding loan interest rates, credit cooperatives (4.48%), mutual finance (4.01%), Saemaeul Geumgo (4.53%), and mutual savings banks (9.69%) all experienced increases.

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