"Ijapau" Cases Surge... "Banks Raised Additional Interest Rates Further"

Five Major Banks' Credit Loan Additional Interest Rates Rise by Up to 0.55 Percentage Points in One Year

Despite President Yoon's Request to Financial Authorities, Household Loan Additional Interest Rates Increased
Interest Burden Grows Amid Rising Rates

[Asia Economy Reporter Sim Nayoung] Although President Yoon Seok-yeol and Financial Supervisory Service Governor Lee Bok-hyun have urged a reduction in loan interest rates, it has been revealed that commercial banks raised the additional interest rates on household loans amid the recent interest rate hike period until last month. The additional interest rate is the rate added to the base rate when banks determine loan interest rates, directly linked to bank margins. The fact that bank loan interest rates have jumped beyond the base rate increase over the past year is partly due to the rise in additional interest rates.

According to the 'May Household Loan Interest Rates' on the Bankers Association Consumer Portal on the 21st, the additional interest rate for general unsecured loans (based on credit grade 1) at the five major banks increased by up to 0.55 percentage points (p) over the past year. The rise in loan interest rates was mainly influenced by the Bank of Korea raising the base rate, causing benchmark interest rates (such as financial bonds and COFIX rates), which serve as the basis for loan interest rate calculation, to increase by more than 1%p. However, banks collectively raising the additional interest rates also had a considerable impact.

For example, compared to May last year, NH Nonghyup's loan interest rate rose by 1.66%p (from 2.46% to 4.12%) in May this year. Of this increase, benchmark interest rates contributed 1.11%p (from 0.76 to 1.87%), and additional interest rates contributed 0.55%p (from 1.7% to 2.25%). Other banks showed the same trend. Shinhan Bank raised it by 0.28%p, KB Kookmin Bank by 0.2%p, and Woori Bank by 0.19%p.

Banks also added more than 0.3%p to the additional interest rates on overdraft accounts during the same period (Shinhan Bank 0.36%p, NH Nonghyup 0.35%p, Woori Bank 0.09%p). However, in the case of mortgage loans, some banks showed a slight decrease in additional interest rates (Woori Bank -0.22%p, Hana Bank -0.15%p, NH Nonghyup -0.11%p) due to efforts to increase loan demand from the beginning of this year by lowering interest rates.

A representative from a commercial bank explained, "The fact that additional interest rates have risen compared to a year ago means that the threshold for the bank's loan policy has increased," adding, "The reasons banks take such measures are, first, to strengthen the profitability of credit policies, and second, as a preemptive response considering that borrowers' debt repayment ability may decline during the interest rate hike period, encouraging those who cannot repay their debts to use other financial institutions."

By raising additional interest rates, banks are fostering the proliferation of 'interest poor' (Loan Poor) individuals who bear the rapidly increasing interest burden after borrowing to buy houses or invest. This is why financial authorities are trying to curb the rise in interest rates by employing mandatory policies, including the disclosure of the interest rate spread between deposits and loans.

Professor Kim Sang-bong of the Department of Economics at Hansung University said, "When the economic situation is difficult and the base rate rises rapidly as it is now, banks should maintain the current level of additional interest rates rather than raising them, prioritizing stability over profits."

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