[Bank of Korea Big Step] "Bank Deposit Interest Rates Rise by 0.9%p... Loan Interest Rates Expected to Increase"

Deposit interest rates to rise by over 0.5%p at banks this week
Loan interest rates also likely to increase

On the 7th, a scene at a bank counter in Seoul as major commercial banks continue to lower loan interest rates while raising interest rates on regular savings and installment savings products. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Sim Nayoung] As the Bank of Korea implemented a big step by raising the base interest rate by 0.5 percentage points (p) at once, banks are expected to quickly raise deposit and loan interest rates. Hana Bank announced on the 13th that it would raise deposit interest rates by up to 0.9 percentage points. Due to financial authorities' pressure to reduce the interest rate spread between deposits and loans, commercial banks are particularly focusing more on raising deposit interest rates.

A representative from a commercial bank said, "We plan to raise deposit interest rates immediately after the base rate hike," adding, "Deposit interest rates at each bank are expected to rise by more than 0.5 percentage points." Most commercial banks last raised deposit interest rates by 0.4 percentage points after the Bank of Korea raised the base rate in May. Deposit interest rates are based on the basic rates set independently by banks and usually change every two to three months.

As of the 13th, the deposit interest rates of many banks, including preferential rates, are at the low 3% annual level, so if they rise by more than 0.5 percentage points, new products are expected to increase to the mid-to-high 3% range. Based on the maximum interest rate, Woori Bank's 'Woori First Transaction Preferential Time Deposit' offers an interest rate of 3.10%, and Hana Bank's 'Hana Time Deposit' offers 3.00%. KB Kookmin Bank's 'Group Purchase Time Deposit,' launched on the 11th, offers 3.20%, and NongHyup's NH Waltz Revolving Deposit offers 3.0% interest.

Shinhan Bank preemptively raised deposit interest rates last week before the Bank of Korea raised the base rate. It increased interest rates on 25 types of deposits by up to 0.7 percentage points. The 'Beautiful Courage Time Deposit' interest rate was raised by 0.7 percentage points to offer 3.0%, and the 'Shinhan Solmanhae Savings' increased by 0.3 percentage points to 5.3% annually.

Loan interest rate increases are also inevitable. Although financial authorities emphasize reducing the interest rate spread between deposits and loans, and banks are trying to minimize loan interest rate hikes for the time being, there are limits. This is because the benchmark interest rates used to calculate loan interest rates are rising. The 1-year bank bond (AAA grade) interest rate, which serves as the benchmark for credit loan interest rates, was 3.666% on the 12th, maintaining the highest level since 2011. Compared to January 3rd this year (1.719%), it has risen by 2 percentage points.

A commercial bank official explained, "The 6-month and 12-month financial bond interest rates, which are the benchmark rates for credit loans, are rising, and the big step taken by the Monetary Policy Committee today will affect the 'July COFIX (Cost of Funds Index)' announced on the 16th of next month," adding, "Due to pressure on the interest rate spread, even if banks lower the loan spread, they cannot reduce it more than the increase in benchmark rates, so all loans are expected to rise now."

Meanwhile, starting in August, the Bankers Association website will provide monthly disclosure information on the interest rate spread between deposits and loans for products handled by each bank, according to the 'Interest Rate Information System Improvement Plan.'

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