"Household Loan Interest Rate Alarm"... Bank Bond Yields Highest in 10 Years (Comprehensive)

5-Year Bank Bond Yield at 3.959%... Highest in 10 Years and 2 Months
Credit Loan Rates to Exceed 6%, Mixed Mortgage Rates to Rise Above 7%

[Asia Economy Reporter Sim Nayoung] The interest rates on bank bonds (financial bonds), which serve as the benchmark for loan interest rates at commercial banks, have reached their highest point in 10 years. The inflation shock that began in the United States has struck global financial markets, impacting South Korea's bond market as well. As bank bond interest rates surge as if breaking through the ceiling, commercial bank interest rates are also expected to soar at a similar pace.

According to the Bond Information Center of the Korea Financial Investment Association on the 14th, as both South Korean government bonds and bank bond interest rates have soared, the 5-year bank bond rate, which serves as the benchmark for mixed-type mortgage loan products (fixed rate for 5 years followed by variable rate) at banks, rose to 3.959% (average market rate). This is the highest point in 10 years and 2 months since April 12, 2012 (3.95%). The 1-year bank bond rate, which serves as the benchmark for bank unsecured loans, also recorded 2.969% (average market rate) as of the 13th. This is the highest level in 9 years and 9 months since September 19, 2012, when it was 2.97%.

Bank interest rates generally link to the 1-year financial bond rate for unsecured loans and the 5-year financial bond rate for mixed-type mortgage loans. Banks raise funds for lending through issuing bank bonds and accepting deposits. For example, mixed-rate loans are lent to consumers using funds raised by issuing 5-year bank bonds, whose rates change daily. When bank bond interest rates rise, consumer interest rates are directly affected.

A representative from a commercial bank said, "There is a very high possibility that unsecured loan rates will rise above 6%, and mixed-type mortgage loan rates will exceed 7%," adding, "Interest rates on household loans, including unsecured loans and mortgage loans, are expected to increase further." As of the 14th, commercial bank loan interest rates ranged from 3.56% to 5.44% for unsecured loans, 4.33% to 6.88% for mixed-type mortgage loans, and 3.49% to 6.86% for variable-rate mortgage loans.

The 15th is the day when the COFIX (Cost of Funds Index), which influences variable mortgage loan interest rates, will be announced. The COFIX based on new loan amounts in April, announced in May, rose to 1.84%, continuing its upward trend. The banking sector is confident that it will increase again this month. After recording 1.64% in January, COFIX rose to 1.70% in February, 1.72% in March, and 1.84% in April, showing a three-month consecutive increase. The extent of the increase will determine the rise in mixed-type mortgage loan interest rates.

An interest rate expert from a commercial bank warned, "The possibility of a recession is expected to increase until the first half of next year, when the negative economic impacts of interest rate hikes and inflation become apparent. Signs of economic slowdown are being observed in economic indicators from the United States and China," adding, "Although concerns about a recession are rising, there is a risk that the pace of interest rate hikes could accelerate depending on the inflation trajectory."

Meanwhile, on the same day, Kim Soyoung, Vice Chairman of the Financial Services Commission, held a 'Financial Market Inspection Meeting' and stated, "Since the expansion of volatility in financial markets could transfer risks to vulnerable borrowers, financial companies, and the financial system, we will continuously monitor the financial difficulties of vulnerable borrowers and the soundness and liquidity of financial companies."

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