"'Ijapoo' is trembling... Interest rates at highest in 10 years"

Bank Bond Yields, the Benchmark for Commercial Bank Loan Rates, Hit Record Highs Consecutively
1-Year and 5-Year Bonds Reach Highest Levels in 10 Years

Faster Rate Hikes Expected if BOK Takes Big Step
Credit Loans May Rise to 6%, Mortgage Loans to 8%

[Asia Economy Reporter Sim Nayoung] Jin Hayoung (28, pseudonym), who took out a 100 million KRW unsecured loan from a commercial bank for investment, became an 'interest poor' after two years when applying for a loan extension. When she first took out the loan in June 2020, the interest rate was 2.64%, and the monthly interest was about 220,000 KRW, but she was notified that the interest rate rose to 4.31% upon extension. The monthly interest also increased to 360,000 KRW accordingly.

Jin said, "The interest has risen so much that I want to pay off the debt first, but with the cryptocurrency market crash, I am barely able to pay the interest," adding, "I receive interest rate change notifications every six months, and it feels terrifying." If the Bank of Korea raises the base rate four more times by the end of this year, the interest rate Jin will be notified of in December will be 5.31%, and the interest cost will reach 440,000 KRW. This is double the amount when she first took out the loan.

The bank bond (financial bond) interest rate, which serves as the benchmark for commercial bank loan rates, has reached its highest point in 10 years. The inflation shock that started in the United States has struck the global financial market, impacting South Korea's bond market as well. As bank bond rates soar as if breaking through the ceiling, commercial bank interest rates are also expected to rise sharply.

According to the Korea Financial Investment Association Bond Information Center on the 18th, as both South Korean government bonds and bank bond rates surged, the 5-year bank bond rate, which serves as the benchmark for mixed-type mortgage loans (5 years fixed rate followed by variable rate), rose to 4.147% (average market rate) as of the 17th. This is the highest point in 10 years and 8 months since October 28, 2011 (4.15%).

The 1-year bank bond rate, which serves as the benchmark for unsecured bank loans, also recorded 3.234% (average market rate) as of the 17th. This is the highest in 9 years and 11 months since July 11, 2012, when it was 3.27%. The COFIX, which serves as the benchmark for variable mortgage loan rates, was 1.98% as of the 15th, the highest in 40 months.

Bank interest rates usually 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 loans 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 rates rise, consumer interest rates reflect this increase directly.

A commercial bank official said, "An additional margin of about 2 percentage points is added, so the current upper limit of unsecured loan interest rates is in the 5% range, and mortgage loan rates have risen beyond 6% to the 7% range," adding, "If the U.S. Federal Open Market Committee (FOMC) continues its giant steps and the Bank of Korea raises the base rate three or four more times this year, loan interest rates will increase by about 1 percentage point from now, so unsecured loan rates could exceed 6% and mortgage loan rates could rise above 8% in the second half of this year."

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