Falling Household Loan Spread Rates... NIS Growth Expected to Slow in the Second Half

"The Household Loan Interest Rates Will Continue to Lag Behind Market Interest Rate Increases in the Second Half of the Year"

[Asia Economy Reporter Minwoo Lee] As the additional interest rates on household loans at commercial banks decline, there is a forecast that the increase in banks' net interest spread (NIS) will significantly decrease in the second half of the year compared to the first half.

According to Hanwha Investment & Securities on the 12th, the average loan interest rates (based on monthly transaction amounts for credit grades 1-2) of the four major commercial banks?KB Kookmin, Shinhan, Hana, and Woori?rose by 30 basis points (1bp=0.01%) for credit loans and 35 basis points for mortgage loans since the beginning of this year. During the same period, the main benchmark interest rates for credit loans (3-month, 6-month, and 1-year bank bonds) increased by an average of 38 basis points, while those for mortgage loans (5-year bank bonds, COFIX) rose by an average of 53 basis points.

Kim Doha, a researcher at Hanwha Investment & Securities, explained, "Since the beginning of the year, the increase in household loan interest rates has not kept pace with the rise in benchmark interest rates, resulting in a decline in the excess interest rate calculated simply as the difference between loan interest rates and average benchmark rates. The excess interest rate for credit loans fell from a peak of 2.23% in November last year to 2.07% in April this year, and the excess interest rate for mortgage loans dropped from a peak of 2.14% in January to 1.84% in April."

Hanwha Investment & Securities pointed to the government's household debt suppression policies as the cause of the additional interest rates on household loans exceeding their usual range since the end of 2020. At that time, due to strong demand in the household loan market, it was necessary to raise loan interest rates for quantitative control, but since household loan demand has sharply declined this year, the decrease in additional interest rates is considered a normal movement.

Due to rising market interest rates leading to higher deposit interest rates and changes in liabilities caused by increased demand for time deposits, the pressure on banks' funding costs is expected to intensify further. Researcher Kim said, "Since household loan interest rates are expected to continue lagging behind the rise in market interest rates in the second half, despite a favorable environment including consecutive base rate hikes and corresponding market rate increases, the expansion of the net interest spread in the second half will be significantly smaller compared to the first half."

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